Dispatch November 2008

Scrapped

For the last decade or so, scrap metal has been the largest volume export from the United States to China. But with the economy in a tailspin, unclaimed scrap metal is starting to pile up at China's ports
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Women sorting the metals of shredded American and European automobiles

Photos by Adam Minter

At 2:00 on a November afternoon, forty of the world’s largest and most important scrap metal traders gathered around a conference table in Function Room 12 of the posh China World Hotel in Beijing to resolve their differences. It had been a rough month: over the previous six weeks, declining consumer demand in the U.S. had forced tens of thousands of Chinese factories to close, and Chinese demand for raw materials – including scrap metal – had plummeted at a record pace. A day earlier, the all-important Shanghai copper price had hit a three-year low; other metals were down as much as 80% over the previous three months. Chinese scrap traders, who, for more than a decade, couldn’t buy enough American and European scrap, are suddenly reneging on contracts signed only weeks earlier, preferring to leave hundreds thousands of tons of delivered scrap metal unclaimed at China’s ports rather than pay the now ruinous prices agreed-upon in a pre-Financial Crisis world.

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Slideshow: "Where America Recyles"

A look at some of China's major metal processing plants.

This is stark turn-about. For the last decade, the men seated at this table (and, in scrap metal, they’re almost all men), had participated in, and benefited from, one of globalization’s great untold success stories, and every November for the last seven years they had traveled to China to celebrate it at the annual, increasingly luxurious, Chinese government-organized “Recycling Metals International Forum.” Last year, the confab attracted 1,300 delegates, featuring hundreds of Chinese scrap buyers (many in “marketing mini-skirts”) handing out business cards and cash offers for scrap to anyone who appeared to be connected to the developed world’s throw-away culture (simply not being Asian was usually enough to attract a crowd). But this year, with only six-hundred participants, the Forum was subdued. In the hallway outside of Function Room 12, deals were made, but not for new shipments of scrap. Instead, distressed foreign suppliers were busy negotiating steep discounts on the “distressed” unclaimed cargos abandoned by bankrupt traders at China’s ports. And when they weren’t discussing catastrophic discounts, they were whispering about the recent alleged kidnapping and ransom of a British scrap trader who had come to China to collect money from a state-owned scrap processor in Ningbo.

Nobody can say for sure just how much scrap metal and paper moved around the world and into China over the last decade, right up until the market crashed in early October, but we do know that, for the last decade or so, scrap has been the largest volume export from the United States to China. The system behind this booming trade was eminently logical: the containers that delivered China’s exports to the United States were returned packed with recyclables that Chinese entrepreneurs would then process and re-manufacture into new export goods, and the cycle would repeat. So long as U.S. consumer demand remained confident and the dollar relatively strong (or the Chinese yuan artificially weak), nobody was worried about enforcing contracts in China. Who would renege on a contract for a commodity that hadn’t faced a market decline in half a decade?

In function room 12, Robert Stein, a burly but affable VP at US-based Alter Trading Company, one of North America’s largest scrap recycling firms (and, by extension, one of North America’s largest volume exporters), takes the microphone and turns his eyes toward a major North China scrap importer with whom he has had a commercial relationship stretching over most of the decade. “It’s very unfortunate that the trust that has developed between buyers in this country and suppliers abroad has evaporated in a month,” he seethes, before warning: “You can’t make metal products out of air.” Seated beside him, Salam Sharif, the handsome, bearded, cowboy boot-wearing scion of UAE-based Sharif Metals, a Middle Eastern scrap metal empire that recycles everything from Saudi Arabia’s luxury cars, to Jordan’s spent brass bullet casings, is rocking back and forth in his chair: “From the belief that what comes around, goes around,” Stein declaims in even tones,“ we believe this must be resolved. A contract is a contract.”

Yet for all of the threats and anger, the Chinese, more than the Americans and Europeans, seem to recognize a basic fact of the situation: someday the World Economic Crisis will pass, and we’ll all be trading again. “There’s no manufacturing in America now,” explains James Li, a Chicago-based Chinese trader who owns processing yards in both countries. “So these Americans will have to sell their scrap to somebody. And China will be the biggest one for buying again when the Economic Crisis ends.” At that, he tells me that he’s hired his retired father to watch the ever tightening ledgers at his South China operations. “You need somebody you can trust.”

Adam Minter is an American writer in Shanghai.
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Adam Minter is the Shanghai correspondent for the Bloomberg World View blog. He is writing a book about the globalization of the scrap recycling industry for Bloomsbury Press.

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