China Credit Curbs May Cut Scrap Buying In Europe

Huge Chinese purchases of scrap metal in Europe could be slowed temporarily if China tightens credit but the problem for European producers would not be solved, a senior executive at Europe's leading copper producer said last week.

Scrap metal purchases in Europe to supply China's fast-expanding industry are threatening the future of Europe's metal producers as they are removing European raw materials supplies, the annual meeting of the association of German metals traders VDM heard.

"You cannot solve a structural problem like this with a short-term credit tightening but I think it could have an impact on their buying," Hans-Gerhard Hoffmann, general manager of recycling for German copper producer Norddeutsche Affinerie, said on the sidelines of the meeting. "But their requirement for large scrap imports will remain."

Chinese purchasing in Europe was currently slightly less aggressive than previously. "I think some of them are being a little more sensible as they realize they must at least start considering the cost of finance in their future activities," he said.

Cheap and easy loan availability was one reason why Chinese purchasers were able to offer much higher prices for scrap than European metal producers, he said.

However Chinese authorities, fearing the economy will overheat, have raised bank reserve requirements three times in the past seven months, making less money available for lending, as they try to slow economic growth to a more manageable seven percent this year from 9.1 percent in 2003.

If the U.S. government agrees to requests from American industry for curbs on scrap metal exports this could also have a serious impact in Europe, said Hoffmann. "If the U.S. was closed to them, Chinese buyers may move into Europe in a huge way and buy up everything," he said. "This could force the European Union to take action and quickly."

The VDM is calling for restrictions on European scrap metal exports even though its member traders are selling to China instead of German industry.

"Traders realize that this cannot go on for the long term," said VDM chairman Hans Muenster. "If the German metals industry closes because of lack of raw materials traders know that the basis of their own business will dry up."

Heinz-Peter Schlueter, chief executive officer of German aluminum producer Trimet Aluminium, said the vast raw materials flows to China and possibly to India in coming years threaten de-industrialization in Europe.

"I know there are traders who are specializing in China but their numbers are falling," he said. "They are realizing that sales to China are destroying their own industry."

Rita Dapont, owner of recycling company Metallverwertung Muenchen, said: "The cable recycling industry in Europe is being killed by scrap cable exports. We cannot get raw materials."

Most are small or mid-size companies that have invested heavily to meet higher environmental standards and were hard-hit by increased scrap prices.

Only in the last decade, Germany's cable recycling industry had fallen from around 50 companies recycling 200,000 metric tons a year annually to eight now handling just 60,000 metric tons. Reuters News Service