Waste & the Environment 2007
Scrap metal: China helps drag metal recycling into a bigger league
The boom in metal prices over the past five years has triggered a wave of metal theft across the world – from lead on church roofs to steel manhole covers. But it has also contributed to the clean- up of abandoned rusty cars, farm machinery and disused construction materials as scrap dealers scoured the land for metal.
All metals can be recycled, and a huge volume of scrap is produced each from old cars going to the scrap yard, packaging, batteries, domestic appliances, building materials and electronic goods together with steel and copper wiring in buildings that are pulled down to make way for new developments.
Recycling metal is a big business, and the boom in the availability of scrap metal is not entirely based on higher prices, as various metals have their own supply and demand dynamics.
The most sensitive to recycling is gold – in India, the world’s biggest buyer of gold jewellery, gold is also viewed as an investment and therefore consumers sell their jewellery when prices rise. Last year, gold scrap supply rose 25 per cent to a record 1,108 tonnes, accounting for 28 per cent of total gold supply as gold prices averaged their second highest annual level ever.
For industrial metals, copper tends to have the closest relationship. Stephen Briggs, metals economist at Société Générale, says the secondary supply of copper has risen 30 per cent from 2003 to last year’s 2.35m tonnes. Over the same period copper prices have risen fourfold.
Copper scrap accounted for about 14 per cent of total copper supplies last year, up from less than 12 per cent in 2003. Mr Briggs says copper is easier to recycle than other non-ferrous metals, and there are refineries that are specifically designed to process secondary material.
Mr Briggs says lead recycling is very consistent as more than three quarters of the metals consumption is used for making batteries, both for motor vehicle and emergency power interruption supply facilities. More than twice the amount of annual lead supply comes from recycled sources.
“It does not really matter what the lead price is doing, the demand for secondary lead is consistent as such a large part of its end use goes to batteries which have a certain shelf life before they have to be recycled, so the flow of scrap lead is much easier to predict,” Mr Briggs says.
In the UK, where the metals industry is largely steel-based, the recycling industry is also focused on steel.
Lindsay Millington, director-general of the British Metals Recycling Association, says British recycling companies processed 13m tonnes of metal in 2005, the latest year for which figures are available. Of that, 12m tonnes were steel and the rest non-ferrous metals. More than 60 per cent of the recycled metal is exported, with 21 per cent going to China, 22 per cent going to India and 48 per cent to continental Europe.
Stephen Greer, chief executive of the Hong Kong- based Smorgon Hartwell Recycling, says China is a key factor behind the boom in scrap metal demand. Mr Greer said there has been a lot of investment in new processing units for recycling metal in China.
As a result of the larger investment, the industry players have become bigger too. Mr Greer founded Hartwell Pacific in the early 1990s and it was completely bought out by the Australia-based Smorgon Steel in 2005.
Another Australian company, Sims Group, took over Hugo Neu to create the world’s largest metals recycling company in 2005, ahead of its rivals The David J. Joseph Company, based in the US, and Euro Metal Recycling, based in Spain.
Mr Greer said the rise in metal prices has given the recycling industry a boost in volume, but that does not always translate to bigger margins.
“Because the price of metal has risen, it does not mean that we make any more money because we have to pay higher prices for the metal,” says Mr Greer.
“We make our money from the volatility in prices, because we feel with our market knowledge that we can take advantage of the movement in prices,” he says. However, Mr Greer does not use regulated metal markets such as the London Metal Exchange to hedge his risks to volatile metal prices.
“Anybody that starts off as a hedger becomes a gambler and I have taken too many losses from hedging, so I don’t do it anymore,” he says.
Another emerging factor in the recycling industry is the introduction of new regulations, particularly within the EU, to encourage more recycling by both consumers and industry.
“Any plan to boost recycling levels are always welcome, but we must be careful that they don’t alter the efficient infrastructure we already have in place to collect the metals, otherwise it will be seen as governments interfering with the natural balance of the market,” says Ms Millington.
Copyright The Financial Times Limited 2008
Scrap metal: China helps drag metal recycling into a bigger league
The boom in metal prices over the past five years has triggered a wave of metal theft across the world – from lead on church roofs to steel manhole covers. But it has also contributed to the clean- up of abandoned rusty cars, farm machinery and disused construction materials as scrap dealers scoured the land for metal.
All metals can be recycled, and a huge volume of scrap is produced each from old cars going to the scrap yard, packaging, batteries, domestic appliances, building materials and electronic goods together with steel and copper wiring in buildings that are pulled down to make way for new developments.
Recycling metal is a big business, and the boom in the availability of scrap metal is not entirely based on higher prices, as various metals have their own supply and demand dynamics.
The most sensitive to recycling is gold – in India, the world’s biggest buyer of gold jewellery, gold is also viewed as an investment and therefore consumers sell their jewellery when prices rise. Last year, gold scrap supply rose 25 per cent to a record 1,108 tonnes, accounting for 28 per cent of total gold supply as gold prices averaged their second highest annual level ever.
For industrial metals, copper tends to have the closest relationship. Stephen Briggs, metals economist at Société Générale, says the secondary supply of copper has risen 30 per cent from 2003 to last year’s 2.35m tonnes. Over the same period copper prices have risen fourfold.
Copper scrap accounted for about 14 per cent of total copper supplies last year, up from less than 12 per cent in 2003. Mr Briggs says copper is easier to recycle than other non-ferrous metals, and there are refineries that are specifically designed to process secondary material.
Mr Briggs says lead recycling is very consistent as more than three quarters of the metals consumption is used for making batteries, both for motor vehicle and emergency power interruption supply facilities. More than twice the amount of annual lead supply comes from recycled sources.
“It does not really matter what the lead price is doing, the demand for secondary lead is consistent as such a large part of its end use goes to batteries which have a certain shelf life before they have to be recycled, so the flow of scrap lead is much easier to predict,” Mr Briggs says.
In the UK, where the metals industry is largely steel-based, the recycling industry is also focused on steel.
Lindsay Millington, director-general of the British Metals Recycling Association, says British recycling companies processed 13m tonnes of metal in 2005, the latest year for which figures are available. Of that, 12m tonnes were steel and the rest non-ferrous metals. More than 60 per cent of the recycled metal is exported, with 21 per cent going to China, 22 per cent going to India and 48 per cent to continental Europe.
Stephen Greer, chief executive of the Hong Kong- based Smorgon Hartwell Recycling, says China is a key factor behind the boom in scrap metal demand. Mr Greer said there has been a lot of investment in new processing units for recycling metal in China.
As a result of the larger investment, the industry players have become bigger too. Mr Greer founded Hartwell Pacific in the early 1990s and it was completely bought out by the Australia-based Smorgon Steel in 2005.
Another Australian company, Sims Group, took over Hugo Neu to create the world’s largest metals recycling company in 2005, ahead of its rivals The David J. Joseph Company, based in the US, and Euro Metal Recycling, based in Spain.
Mr Greer said the rise in metal prices has given the recycling industry a boost in volume, but that does not always translate to bigger margins.
“Because the price of metal has risen, it does not mean that we make any more money because we have to pay higher prices for the metal,” says Mr Greer.
“We make our money from the volatility in prices, because we feel with our market knowledge that we can take advantage of the movement in prices,” he says. However, Mr Greer does not use regulated metal markets such as the London Metal Exchange to hedge his risks to volatile metal prices.
“Anybody that starts off as a hedger becomes a gambler and I have taken too many losses from hedging, so I don’t do it anymore,” he says.
Another emerging factor in the recycling industry is the introduction of new regulations, particularly within the EU, to encourage more recycling by both consumers and industry.
“Any plan to boost recycling levels are always welcome, but we must be careful that they don’t alter the efficient infrastructure we already have in place to collect the metals, otherwise it will be seen as governments interfering with the natural balance of the market,” says Ms Millington.
Copyright The Financial Times Limited 2008
