Copper recyclers ready for overhaul

Wang Zhiqiang thanks his lucky stars he got out of the copper business when he did.

Like many of his neighbors in Qingyuan, Guangdong province, Wang, 30, made good money recycling copper and other materials in 2007. Early last year, however, he got cold feet.

"When I saw copper and other metal futures continually dropping, I had a bad feeling," he said. "It didn't look like normal fluctuation. It looked like trouble."

Trouble it was. Almost overnight, the price of copper dropped 60 percent; zinc dropped 70 percent, and other metals roughly 50 percent.

As quickly as he got into the recycling business, Wang got out. He invested in a small department store after pocketing $10,000, money he would otherwise have lost, he said with a shudder.

Most of Wang's neighbors were not so fortunate. Recyclers in Qingyuan have lost an estimated $4.4 billion since the bottom dropped out of the market

Widely known as a copper recycling center, Qingyuan once had a workforce of 80,000, employed by 22 national companies and more than 150 medium-sized enterprises. Of those, 20 percent have gone bankrupt, 50 percent have been cut in half, and the remainder has lost about one-third of their market value, according to a local recycling association.

For Qingyuan, the disaster was unpredictable, but instructive. Recyclers typically locked in the price when they signed a contract with foreign suppliers. Saddled with fixed operating costs, that left them nowhere to go when the price for their product dropped, according to Yan Jinming, general manager of CITIC Securities Futures.

As containers of scrap metal arrived in Chinese ports, recyclers had no choice but to decline the shipments. Many forfeited their guarantees, but that wasn't the worst of it.

"Many of them lost money, but more importantly, they may have lost customers. In the long run, it may be difficult to re-establish the supply chain," said Yang Shun, an official with the recycling association.

As many as 10,000 containers of scrap metal piled up in ports like Ningbo. Recyclers fear they may lose the business to competitors like India and Vietnam.

As if that was not bad enough, China's recyclers suffered a black eye when Goldarrow Metals, a British scrap metal company, accused a local company of holding its agent for ransom.

Ningbo Guanghe Metal Recycling denied the charge, maintaining that it had only asked the Goldarrow representative not to leave the country until allegations of fraud were resolved. The company maintained that it had contracted for copper and zinc, but had received lower-priced aluminum instead.

The British embassy in Beijing investigated the matter, but elected not to get involved after determining that it was a business dispute.

Now, after 20 years of development and one year of economic disaster, Qingyuan's recycling industry needs to rebuild. Many enterprises are receiving help from provincial authorities or CITIC as they seek to upgrade their equipment and get back on their feet.

"After the financial tsunami, the industry is ready for an overhaul," said Lai Kunhong, director of the Qingyuan recycling group.

(China Daily 03/30/2009 page7)