Drop In Chinese Demand Melts Scrap Metal Market A slowdown in the scrap-metal market in China is hitting scrap dealers hard. Just months ago, scrap metal was in such high demand that thieves were pulling up manhole covers and fire hydrants to sell them. Now, some prices have tumbled 80 percent in four months.
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Drop In Chinese Demand Melts Scrap Metal Market

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Drop In Chinese Demand Melts Scrap Metal Market

Drop In Chinese Demand Melts Scrap Metal Market

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This is All Things Considered from NPR News. I'm Melissa Block.


And I'm Robert Siegel. Just months ago, scrap metal was golden. Demand in China had driven prices so high that thieves around the world were pulling up manhole covers, fire hydrants, and cemetery monuments to sell them. Well, now the scrap metal industry like so many industries has been hit hard by the global financial crisis. As NPR's Louisa Lim reports from Shanghai, scrap yards themselves could be facing the scrap heap.

LOUISA LIM: Alex Antikides first noticed something was up in May. He runs Pan Global Resources, a company which processes and exports ferrous scrap. His customers stopped buying and the customers never came back.

Mr. ALEX ANTIKIDES (Pan Global Resources): The market finally never recovered and, in fact took a nosedive. Most of us are still sitting on stocks of $600 a ton, which we cannot shift properly at the moment.

LIM: He commiserates in Spanish with another dealer at a recent industry meeting in Shanghai. Crisis almost seems an understatement for what's been happening in the scrap metal market. Some scrap prices have tumbled 80 percent in four months. While the product may be less well-known than stocks or real estate, the story is a familiar one of giddy, gravity-defying markets, and speculation on a grand scale that delivered extraordinary profits.

Mr. ANTIKIDES: We believed it would never stop. We were buying and every time we bought, it was going up. And we were very happy.

LIM: And that was largely due to China. China's sizzling economic growth meant it accounted for 45 percent of the scrap metal market, turning scrap into steel for construction. Chinese demand pushed up all commodities, its investment in railways and housing helped quadruple prices of copper and nickel between 2001 and 2007. Now, those good times are over.

Mr. SHAKUR ADEL-AL-ESSA (Worker, Kuwaiti Metal and Recycling Company): It's been very bad for us. The meltdown, customers walking away, that's been across the region.

LIM: Shakur Adel-Al-Essa works for a Kuwaiti metal and recycling company. He describes how buyers are refusing to honor contracts signed when the market was high. Some are walking away, forfeiting deposits. Others are bargaining down prices, knowing the sellers have no choice. Many buyers can't get financing from banks to close the deal, and in turn they're passing on these financial problems to the scrap metal dealers. Many of them didn't hedge their transactions and are sitting on potential losses of tens of millions of dollars. And so the crisis expands and reverberates down the chain. Shakur Adel-Al-Essa again.

Mr. ADEL-AL-ESSA: I've forward-sold around 15,000 tons of material, and only 3,000 tons went through. The rest were either canceled or they asked for discounts, or asked for discounts and changed payment terms.

LIM: So, what has happened to the other 12,000 tons?

Mr. ADEL-AL-ESSA: They either are imported or are heading back or I have to sell them at a - the current prices today.

LIM: Your losses must be huge.

Mr. ADEL-AL-ESSA: Of course. That's the nature of the business.

LIM: So tens of thousands of tons of imported scrap metal unloaded from boats, rejected by buyers, are now sitting in limbo in ports around the world, especially in China. With broken contracts becoming a norm, trust between foreign sellers and Chinese buyers is at an all-time low. The deputy chairman of China National Resources Recycling Association, Wei Jiahong, says many Chinese buyers are breaking their contracts because they themselves are on the brink of collapse.

Mr. WEI JIAHONG (Deputy Chairman, China National Resources Recycling Association): (Through Translator) Lots of our factories have shut down. For example, in the copper industry, one in three factories now have big problems. Many small companies won't be able to make it. It's really survival of the fittest.

LIM: So what do these problems in the scrap metal industry have to do with you? Alex Antikides says the market is an important indicator of the overall health of the economy.

Mr. ANTIKIDES: When the steel industry is going down, which is the heart, the artery of the economy, because steel goes in cars, in wide goods, in all sorts of consumer goods, when the demand for that drops, then people will have to start worrying, that means that the boom is over.

(Soundbite of Chinese news)

LIM: With the announcement of China's massive stimulus package, some hoped demand for metals would bounce back. But analysts here in China are gloomy, saying the plan will just accelerate projects already in the works. The scrap industry, like so many others, is in for a long, hard winter. And, at this point, few are willing to predict what it will look like when it emerges. Louisa Lim, NPR News, Shanghai.

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