Analysts and staff members at the World Trade Organization (WTO), when researching whether China is making progress on establishing a market-based economy, may need to look no further than the basic materials sector to find some clues.

A report issued by the International Monetary Fund (IMF) in August lists the steel, aluminum and paper industries as among 10 industrial sectors in China that are “defined by low capacity utilization rates and a large share of firms incurring losses.” At the heart of the situation lie state-owned enterprises (SOEs).

The first three quarters of 2017 also witnessed a concerted effort by Beijing, on several fronts, to scrutinize, punish and even shut down companies with business models that rely on imported secondary raw materials.

The pretext has focused on environmental protection—a regulatory process China’s population supports, considering its air pollution and groundwater quality issues.

Conversations with recyclers affected by the crackdown, however, yield strong suspicions the inspections and license suspensions are targeted exclusively toward small-to-medium-sized and privately held companies. None can name an SOE that has been faced with a license suspension or shutdown.

The crackdown also appears to have focused only on scrap importers, with media reports and government press releases continually referring to imported scrap materials as “foreign garbage.” Efforts to collect recyclables within China do not seem to be facing the same finger-pointing and name-calling.

In the steel sector, the crackdown has shown a similar bias against small operators and scrap consumers. China has targeted small, scrap-fed induction furnace operators for closure, citing cleaner air as the reason. The large basic oxygen furnace SOE steel mills—bountiful smokestacks notwithstanding—appear to be escaping scrutiny.

In late July, the editorial board of the London-based publication The Economist expressed its concerns about the renewal of SOE boosterism in China, writing, “With their opaque finances and domestic privileges, Chinese SOEs are easily accused of having unfair advantages when they venture abroad.” The essay also says evidence shows SOEs “underperform private businesses” and are a “principal culprit in the buildup of corporate debt in China.”

The word “opaque” points to another reason to be skeptical about China genuinely striving toward market economy status. Company owners whose business models are collapsing because of sudden inspections and resulting punishments cannot be certain whether environmental enforcement is genuinely the reason or whether a hidden policy is to blame.

What is more certain—and concerning—is that a generation of entrepreneurs in the basic materials sector in China is beginning to lose hope. If they are convinced there are larger forces working against them, these entrepreneurs likely will seek opportunities elsewhere—either beyond recycling or beyond their own borders.

Benchmarking is defined as measuring something against a standard. For material recovery facilities (MRFs), how do operators ensure the equipment and workers who help to sort and move materials through the facility are working to the best of their abilities? Prior to any installation or upgrade, what types of conversations should operators, managers and stakeholders have to guarantee such a move is necessary?

These are the types of questions Nat Egosi answers daily. As president and CEO of RRT Design & Construction, a Melville, New York-based consulting firm with significant experience in the MRF design sector, Egosi has helped hundreds of companies complete their projects over the last 25 years. (Egosi will serve as a moderator at the second annual MRF & Recycling Plant Operations Forum in Chicago Oct. 10.)

The following Q&A is an edited version of a conversation in which Egosi talks about today’s MRFs.

Recycling Today (RT): RRT has designed and completed more multimaterial recycling and MRF systems than any other firm in North America. What types of conversations are important when first considering a MRF installation/upgrade?

Nat Egosi (NE): The type of conversations in my mind immediately go right to cost justifications. The scheduled time frame of when would this installation upgrade be done. What are the specific goals and objectives? I would spend a lot of time on goals and objectives by identifying as many of the goals as possible, as many of the objectives as possible, to make sure they’re all included within the conversation of this installation upgrade.

After that exercise, then I’m always looking for somebody to answer the questions, “Why is this necessary?” and “What are the risks and consequences?” In other words, the inverse of what we’re trying to accomplish and what if we don’t. What are the risks with going forward with this and what are the consequences? Is there potential cost overrun? Is it a scheduling issue? What do we do with the people in the plant? And so on.

We also would like to have a conversation: What are the factors that are outside your control, “your control” meaning the person we’re having this conversation with, which may be the plant operator, the plant owner, maybe the head of maintenance, maybe the head regional maintenance manager, maybe a business development manager. What items are outside of control and what can be done to minimize their impact?

When we’re all done, we sit down and say, OK, what is the actual scope of work? What are we actually going to do? We want that to be very clear and be very comprehensive, so we can drill down to the details of do we need fire sprinkler modifications or don’t we? Do we need to get a building permit or don’t we? Do we need extra lighting or don’t we? That’s the kind of level of detail we want to get at the lowest level. At the highest level, it is what is this going to cost? How long is it going to take? And what do we expect it to do?

At the end of all that, one should step back and say, Who are the stakeholders in this effort? We are having a conversation. Maybe RRT and one or two other people. No one else is in the room. Who else are all the stakeholders? Let’s identify them all and when we should get them involved.

Finally, the last piece is what are the boundaries around this project so we don’t have a “creep factor.” Oftentimes with these installation upgrades, you start off with what you want to do and then suddenly, before you know it, other things get added, and you get what is called a creep factor. That creep factor doesn’t necessarily align with the goals and objectives, it doesn’t align with the schedule, and you get off course. It’s very important to define those boundaries in a way that they’re so clear that anybody who suggests adding anything or changing something that is on the other side of that boundary line, that would be a different project for a different day and a different time. And if it shouldn’t be on this side of the line but it is, then you didn’t do a good job defining the project.

RT: How can MRF operators ensure the equipment and processes in each section of the MRF are working efficiently from day to day? How do you ensure workers are efficient?

NE: Managers and supervisors need to walk the floor with a sole purpose. Oftentimes, managers and supervisors are tasked with doing a lot of reports, going to meetings and conference calls; they’re not walking the floor. When they do walk the floor, they’re not walking the floor with that purpose in mind, which is assessing: Is my equipment and are my people efficient today at this moment that I’m walking by them? They’re walking the floor for a different reason. They’re walking the floor to go talk to somebody or walking the floor to go check on something and literally just walking by. It’s no different than if you walk through your office, you’re going for a purpose, you’re getting a cup of coffee. You just literally are going from point A to point B. To ensure efficiency, you need to walk with the sole purpose of just that, no other purpose: Your mind should be free, your eyes should be wide open, and you have to look at every little detail as you walk the plant.

Many managers and supervisors do exactly what I said, but there are many managers and supervisors who don’t. They’re on the floor, but they’re not there with the sole purpose of looking to see whether the workers are working efficiently.

RT: In what ways are safety and maintenance improving in facility operations?

NE: Safety has improved with better lighting and housekeeping, as well as with supervision, teamwork and awareness.

An example of teamwork is telling your buddy, “Don’t do that.” Awareness is understanding by example when somebody does something that it’s likely to be a safety problem, so you want to correct it.

Maintenance has improved through the addition of better access to be able to perform maintenance and better lighting, as well as with training and awareness.

There’s quite a bit of similarity on the improvements for safety and maintenance.

There also are excellent contractors now available for outsourcing. Years ago, that wasn’t the case. The only people who knew how to fix the facilities were the people working in the facilities themselves. Now there’s just a lot of expertise out there that’s available for outsourcing.

I would also say that the failure points in a facility are well-known to an operator. Within their own facilities, they can identify the four or five trouble spots that are known to break or fail and, therefore, they can apply what’s called predictive maintenance techniques.

You’ve heard of the term preventive maintenance, where you do things to prevent failure. But there’s also a higher level of maintenance management technique, which is called predictive maintenance, where you remove something or replace something before it fails because you know if you don’t do it, it’s going to fail at some point, and that point in time may not be convenient for you. If a tire is going to wear out, you can keep putting air in the tire and checking it out, that’s preventive maintenance, but at some point you’re going to replace it because you know it’s just time to replace it. You don’t want to have a flat in the middle of the highway on the way to an important engagement, so it’s a predictive maintenance technique.

You just know you need to do certain things at a certain time. And those failure points, which are known to the operator, are identified and put on the schedule and can actually be replaced, modified or fixed before they fail.

RT: What work can MRF operators do to suppress noise and dust generation?

NE: Noise is a difficult issue in a factory environment, and I use the word factory because that’s essentially what we’re doing here: We’re bringing a raw material, modifying it, changing it and then producing products that we can sell. More equipment means more noise. You want less noise, have less equipment. The equipment is all inside a building that has sheet metal walls, steel platforms and concrete forms—all these things reflect noise. Placing sorters in a room enclosure helps to isolate the workers from the noise.

With regard to dust, the root source of dust is the small fibers in paper and fine glass particles. Minimal dust comes from plastic bottles, steel and aluminum cans and cardboard. Yeah, OK, a cardboard box could have a dusty item inside it, but that’s not the steady problem.

How do we suppress dust? You look at any equipment that creates any impact, and it will generate dust.

I visualize taking a piece of carpet outside and knocking it with a broom to knock the dust off. That in essence is what’s going on in these facilities.

The screens that separate the paper from the containers have hundreds of stars and discs. If you look at them, they’re slapping the paper at several hundred revolutions per minute. They are the major source of dust generation. They tear, scratch, rub, scrape, rip, pull, scuff all the fibers that are on the sheet of paper. The paper is nice and smooth, but if you keep rubbing it, scuffing it and scratching it, you start loosening the fibers.

The discs themselves are intentionally designed not to be smooth but rather to be rough and irregular, and that’s how they get the containers and the paper separate.

These screens should be enclosed with negative airflow to a dust collection system, thereby limiting the dust leaving the surrounding area of the screen in an uncontrolled manner.

The alternative to all of this would be better paper separation technology.

RT: How have audits of inbound quality affected MRFs? What are they doing with this information?

NE: A variety of things. In some cases, they collect information, and they don’t know what to do with it. It’s information overload. Arriving loads are inspected, they’re sorted and the information is recorded on a piece of paper or a tablet. What the information is used for in a positive way is to educate the collector as well as to enforce the restrictions to the incoming materials. With that data, they can tell the collector, “Look, this is the data I found. This is what my incoming material requirements are; you’re not meeting my requirements, so I can now enforce a restriction to you unless you fix your problem.” And the collector now knows what they need to do because they now have the information.

The data also are used to understand the production requirements of the facility. For example, if the incoming material has a higher percentage of corrugated or contamination than what was generally expected or seen in prior time periods, then one could look at how to change the facility in such a way so it can still operate efficiently and produce the outgoing quality that’s necessary for the markets or use this information to justify capital projects, whether they need a piece of equipment or technology or they need to do a modification. That’s where this information has been helpful.

RT: New technologies are creating new market opportunities for businesses—what potential for MRFs do you see related to new equipment?

NE: The biggest potential for MRFs related to new equipment is that the commodity composition is changing dramatically, and it has continued to change since the very beginning but continues to change now with the lightening of the tons. The technology that today is in those facilities was really developed some 15, 20 years ago and, in some cases, one would say it’s not really appropriate for the next 15 to 20 years. And in as much that manufacturers talk about the new and improved, when you drill down and really look at it, it’s a variation of what was there before. They’re slight improvements, and maybe those slight improvements could be perceived to be significant, but they’re not significant game-changers. There’s clearly a need for processes and technology that would result in a MRF having much less equipment but more effective equipment.

RT: Would you like to make a comment at all on robotics?

NE: My comment on robotics is it’s an interesting technology that is being tested in various facilities. Certain manufacturers have adopted that as part of their strategic growth area, while some other manufacturers have not. Overall, it will take many years for this technology to evolve such that the operators are really satisfied with the end results when they compare what the cost of this equipment is to not only install but also to maintain and they consider the fact that incoming material keeps changing. So, if you could justify this expense based on today, would it still be justified tomorrow if the composition of the material changes and if also you don’t hit all of those goals and objectives that you had initially.

Since there are so many questions around this, and because this industry has so little profit margin to begin with, it’s very awkward for anybody to reasonably take the risk and make a decision to move forward with this when they have so much to lose in comparison to how much they would gain. There’s not a lot of profit margin in this business.

RT: Talk about processing contracts and how MRFs should implement a processing fee system.

NE: This is an opinion. In my opinion, operators need to be paid for their services, which includes every aspect of their work, whatever they’re doing. The value of the incoming materials fluctuates for all the reasons. This value belongs to the collector or to the agency that controls the collection. The agency or the collector can use that value to provide for correct incentives, education to the generators and to help to defray its program costs. The operator does not need to share in that value. In reality, the operator is providing a service to convert the nonmarketable materials that are being delivered into salable commodities. So that’s my thought.

Nat Egosi is president and CEO of RRT Design & Construction, Melville, New York.

Throughout the past two decades, many wire and cable processors in North America have focused on recycling high-grade (high metals content) wire and cable, while lower grades largely have been baled and shipped to China.

The future of baled wire and cable shipments to China is unclear, as that nation’s government reaches final decisions and sets timetables on which forms of scrap it will either restrict or outright ban. In the summer of 2017, the government conducted numerous recycling facility inspections and suspended the import licenses of several recyclers—including some wire and cable processors.

In the aftermath of the summer inspections, wire processors in North America say it has become clear that scrap generators and smaller dealers are exploring their options in a changed landscape. Experienced wire chopping plant operators likewise will sharpen their pencils to determine whether access to additional types of wire and cable represents a genuine opportunity.

Ringing off the hook

News travels fast in the 21^st century, and wire processors say it did not take long for the news of environmental clampdowns and drafted restriction policies in China to reach the United States and then create reactions.

“People have been coming out of the woodwork,” says Todd Safran of Chicago-based wire processor Safran Metals. “I think a lot of dealers are opening their Rolodexes and looking for new potential homes” for some of their material, he adds.

“A lot of lower grade material, such as cords, harness wire and low-grade No. 2 insulated wire, that is not usually staying in the U.S. is all of the sudden being offered to us,” Safran remarks.

In Kansas City, Missouri, Jeffrey Mallin of Mallin Cos. has experienced a similar level of increased inquiries. “It’s incredible how many people are inquiring with us about processing ASRs (auto shredder residues) and low-grade insulated wire.”

Brian Shine of Lancaster, New York-based Manitoba Corp. says, as of late summer, the calls he was fielding convinced him supply was surpassing demand in the wire and cable recycling sector. “We are seeing more inquiries from potential new suppliers,” he says. “I believe this is a combination of the situation in China coupled with a bleak demand picture domestically.”

Beau Janzen of California-based Copper Recovery says the situation presents opportunities for recyclers and equipment suppliers. (Copper Recovery processes wire in Huntington Beach, California, and also markets wire processing equipment.)

Janzen says irrespective of geography, scrap wire and cable ultimately is upgraded when it is separated from plastic cable, and any type of insulation and pure copper (or aluminum) is harvested.

“Ultimately somebody must chop the material to get the copper out, and somebody is making that money,” Janzen says. “When you sell copper chops, you are selling 100 percent copper, and there is always a buyer for pure copper.”

In the past two decades, he says, that activity often took place in China, while North American processors baled and shipped lower grades of wire. “While doing this can save a little time, a lot of money is left on the table. When a bale is made, the seller estimates the bale yield, and then the buyer makes his estimation in his favor to make sure he is covered,” Janzen says.

Worth the effort?

Scrap companies can accept a nearly endless variety of materials, including wire and cable with a wide range of metallic content percentages. Because the technology exists to recycle something, however, doesn’t mean the effort is practical.

North American wire and cable processors with chopping and separation equipment in place will have to be convinced that a profit margin exists for them to broaden the list of materials they will introduce into their processing systems.

Mallin says he sees significant hurdles to be overcome. “We don’t think our industry is prepared with the equipment and processes to economically and efficiently extract metal from some of these grades of insulated and contaminated insulated that have been going to export,” he says.

Shine acknowledges his firm has “been focused on exclusively purchasing and processing No. 1 insulated copper wire,” but says the time may be right to look beyond that. “There will clearly be more available low-grade materials, as they will require domestic processing to recover the copper content,” he says.

“Most processors that I visit or speak with are certainly exploring the viability of processing and then marketing lower grade copper-content items,” Shine continues. “We are now evaluating the potential to begin processing lower grade items.”

Safran says most North American processors are “not that prepared, in my opinion” to accept the lower grade material.

“Some of the choppers who have big chopping lines and need to feed their machines might welcome this opportunity, but I question the cost-effectiveness of running lower grade material,” he states.

Safran says existing demand for wire chops also may provide a hurdle. “I don’t believe at this time there are markets to [absorb] this processed material. Higher grade materials are sitting in inventory right now waiting for the market appetite to improve, so I can only imagine that the lower grade, off-spec material will struggle to leave the docks as well.”

Josh Trudeau of Cable Management LLC, Meriden, Connecticut, says, “This is going to lead to lower prices for low-grade materials and higher margins for processors. This is the main driver behind higher sales of specialized equipment to process lower grade wires.” He lists “large turbo mills, automated curve feed hoppers, smart loop technology and chromasort sorters” as solutions in waiting.

Janzen also says machinery suppliers will compete to help boost the North American scrap industry’s capacity to process more scrap wire and cable.

“Costs to process insulated copper wire (ICW) depend on many factors, and it is a volume-based number,” he says. “Lower grade ICW takes longer to process than power cable because you must cut it into smaller pieces to liberate the copper from the plastic insulation.”

Janzen continues, “Very small machines can be too slow to be flexible enough [and] profitable enough and overall are not effective for scrap dealers,” he says. “Very large machines require very significant investments in infrastructure, material logistics, manpower, etc. We believe now is a real opportunity for smaller and midsize dealers to make the shift and begin processing their own material with moderately sized and moderately priced equipment.”

Mallin, whose company is among the larger ones in the wire sector, points to the same factors. “There is a balance between volume, economics and efficiencies and separation quality regarding lower recovery material,” he comments. Mallin adds that there is a “slower pounds per hour [outcome] with lower grade material.”

Shine says he is aware the technology exists to recycle lower grade wire but adds that recyclers will have to perform the due diligence to see if a steady profit margin is feasible. “I believe the necessary equipment is available now; the challenge is cost-effectively processing lower copper-content materials and then marketing effectively the resultant copper generated,” he states.

The author is editor of Recycling Today and can be contacted at btaylor@gie.net.

As the leaves began to fall, indicating the end of summer, so too did export volumes and pricing for recovered paper grades headed to China from the United States. The country introduced a proposed ban on certain scrap imports, including mixed paper, in mid-July, which has sellers seeking other avenues for this grade. Additionally, with the delay in reissuing import licenses in China, markets outside of that country that don’t have permitting issues are taking advantage of this opportunity.

The future is cloudy

China has been transparent in its desire for cleaner material. The country has expressed this through its campaigns to crack down on contaminants in incoming loads of recyclables and the proposed ban on specific scrap imports.

The Institute of Scrap Recycling Industries (ISRI), Washington, issued a letter Aug. 18 saying a ban on mixed paper would “devastate” recycling in the U.S. and globally and “result in the … closing of many recycling business throughout the United States.”

ISRI says China’s share of global recovered paper imports was 55 percent in 2016. Citing figures from the U.S. Census Bureau and the U.S. International Trade Commission (ITC), ISRI’s letter shows that the United States exported 37 million metric tons of scrap metal, paper and plastic commodities in 2016 worth $16.5 billion, with China importing 13.2 million tons of paper worth $1.91 billion of that total.

While sources say they are still selling bulk grades regularly into China, sending mixed paper is risky.

Aug. 24, China’s Ministry of Environmental Protection (MEP) released newly drafted limits on prohibitive materials in scrap shipments. The MEP draft proposes tightening the thresholds for “carried waste” (contaminants and prohibitives) to 0.3 percent for all scrap materials. Recyclers are questioning this 0.3 percent limit on contaminants.

In a separate letter to the MEP, released Aug. 25, ISRI states that if implemented, these standards could effectively prohibit scrap imports to China.

“It is simply not possible to achieve such a control level, nor is it possible to even measure it with such accuracy,” writes ISRI President Robin Wiener in the letter to the MEP.

The U.K.-based Recycling Association called the 0.3 percent limit “unrealistic.” The association criticized the proposal to lower the allowed contamination levels for imports of scrap paper bales into China and asked the Chinese government to reconsider the reduction.

A California-based exporter says what happens in China is anyone’s guess. “The future is really cloudy and gray; no one can really see,” he says.

Another California-based exporter who was contacted for this feature was in Japan in early September “in an effort to understand what’s going on in China,” he says.

An association in China also is seeking the government’s attention regarding the import restrictions. In China, the South China Morning Post reports that the Recycle Materials and Reproduction Business General Association, whose members collect scrap paper throughout Hong Kong, halted activities for five days in mid-September. The association’s Director Jacky Lau Yiu-shing says he and his members are working to find viable markets for scrap paper as a response to the restrictions, but he also told the newspaper, “If this issue is not solved by the end of October, the whole industry will come to a stop regardless. This will be several times more serious.”

Alternatives for mixed paper

Market prices for secondary fiber have slipped for some grades. Pricing for old corrugated containers (OCC), however, remains solid as sources predict demand for this grade will spike.

At domestic prices of $150.56 per ton for OCC and $59.72 per ton for mixed paper in September, the price spread between the two grades topped almost $100. Sources say with this kind of spread, more OCC will be pulled out of mixed paper loads. With less brown paper in it, mixed paper will get softer. A trader based in the Midwest says with less corrugated, the quality of mixed paper will lessen while demand for OCC will increase.

“China has to run something, and they’re going to increase the demand for corrugated,” says the trader. “Later in the year, corrugated [demand] will spike up further, and it will stay up because they have to replace mixed paper with corrugated and news.”

He predicts that while China says it won’t accept mixed paper anymore, it will “take what we call a dirty news grade, a No. 56 news on our new schedule.”

As the future for mixed paper exports to China becomes more uncertain, U.S. recyclers say they are developing alternative markets for the material.

The exporter on the West Coast says his company already is establishing other avenues for its mixed paper. He did not disclose those details, however.

“If it gets cheap enough, the other paper mills in the world will buy it,” the exporter says. “If OCC is going to be at one price and mixed paper is going to be much less than that, it’ll find its place. I’m just not sure China is going to be that place.”

Packaging picks up

Looking beyond China, sources say markets for tissue and linerboard medium will be relatively solid.

The packaging sector also is an area of growth for recovered paper. In the article “Prepared for packaging,” available at www.RecyclingTodayGlobal.com/article/paper-recycling-packaging-containerboard-2017, with a condensed version in the sidebar with the same title on page 45, Recycling Today Editor Brian Taylor outlines several investments in capacity and acquisitions tied to the packaging sector. These include an $80 million investment into the construction of a new containerboard packaging plant in Piscataway, New Jersey, by Canada-based Cascades Inc. and Norcross, Georgia-based WestRock Co.’s acquisition of Multi Packaging Solutions International Ltd. and certain operations of U.S. Corrugated Holdings Inc.

WestRock says it intends to integrate 105,000 tons of containerboard converted annually by the acquired facilities and another 50,000 tons under a long-term contract with a newly created company. There also was the May 2017 announcement by Australian Visy/Pratt Industries Global Chairman Anthony Pratt to invest some $2 billion to expand his company’s North American recycling, containerboard and box making operations.

Canada-based Kruger Inc. announced in early September that it plans to diversify operations at its Brompton mill in Sherbrooke, Quebec, and its Wayagamack mill in Trois-Rivieres, Quebec, into specialty niches, including flexible food packaging, labeling and digital printing. This move is an effort to “gradually reduce the production of some publication paper products that are in decline, such as newsprint and magazine paper,” the company says in a press release.

As these companies grow, sources point to a growing hurdle they are trying to figure out related to OCC and packaging: finding an economically effective way to collect corrugated from apartments and condominiums.

As North American dealers in the recovered paper sector figure out how to manage these changes, it’s a wait-and-see game with China and how its actions will affect a worldwide industry.

The author is associate editor of Recycling Today and can be contacted via email at mworkman@gie.net.