USA TODAY International Edition
For US recyclers, trade war means it’s crunch time
Tiff with China jeopardizes tie between Michigan operations and top customer
DETROIT – It’s hard to imagine how a trade war could turn into a scrap yard fight here.
Yet China is the largest consumer of scrap commodities. And Michigan is a major exporter, generating multimillions of dollars in business when it comes to recycling metals.
So when China slapped retaliatory tariffs on aluminum waste and scrap, recycling operations found themselves on the front lines of the trade war.
Consumers who haul stuff out of basements, backyards and garages hoping to make a few bucks by scrapping already are seeing far less money in return for junk.
It doesn’t get more basic than this: The most recycled consumer product in the United States is the aluminum can.
China went a step farther Thursday, placing 25 percent tariffs on $16 billion of U.S. products – including all scrap commodities, such as copper, nickel and stainless steel.
Michigan has about $1 billion in total exports for products to China at risk because of new tariffs, according to U.S. Chamber of Commerce data.
And at least $24.3 million in aluminum waste and scrap exports to China from Michigan are also at risk.
Scrap yard sees prices drop
Driving across more rugged parts of Detroit, you’ll spot small, grungy outfits dedicated to recycling metal, an economic necessity for dealing with costly leftover materials from the vast auto manufacturing process.
Manufacturers across Michigan – including auto suppliers and makers of office furniture – are dealing with raw materials, finished products and discarded materials. Think of things such as castoffs from the sheet metal used to make a new car door panel heading to a recycling facility.
Big Kimmel Scrap Iron & Metal Company trucks, for example, haul the scrap materials out of area factories run by auto suppliers to their yard. It’s strictly a business-to-business operation – no goods are accepted from individual scrappers who might be clearing out garages, or worse yet, trying to unload stolen catalytic converters or road signs.
“We buy nothing from the public due to the scrap metal theft issues pervasive in Detroit and across the country,” said Robert B. Kimmel, a third-generation scrap metal dealer.
The company buys scrap from industrial manufacturers in the automotive and defense industries, as well as demolition projects across Michigan. The scrap is sorted by size, type and chemistry. The materials are later sent via rail car or trucks to steel mills and other locations through the Midwest and elsewhere in the United States.
“All of our raw material is processed on site or sold for final recycling at domestic or foreign mills,” Kimmel said.
He noted his business is already experiencing extremely quick price reductions from domestic steel and aluminum mills and foundries, where his company sells recycled metals it buys.
Kimmel says his business won’t be dealing directly with higher tariffs, as he doesn’t export to China. But he expects that his profits will be reduced, as prices keep going down for aluminum, copper and stainless steel.
American-made goods typically become more expensive overseas when China, Canada or other countries impose retaliatory tariffs on U.S. exports.
Scrap prices are going down in the United States because supply here is heading up now that the massive scrap market in China is in question.
“If customers in China hesitate to pay the extra 25 percent charge, they will try to source material from companies in other countries,” said Adina Renee Adler of the Washington-based Institute of Scrap Recycling Industries. “Thus, U.S. recyclers lose the business.”
Right now, industry experts say no other country or group of countries can pick up that slack from China.
Lower profits would mean that scrap recycling companies would be less likely to reinvest in operations, expand, buy more material to process and hire workers, according to industry experts.
Charles Ballard, a professor of economics at Michigan State University, said an often misunderstood part of the trade war involves how businesses are hit by tariffs that other countries imposed in retaliation.
“Lots of Michigan companies use steel and aluminum,” Ballard said. “We have the auto companies, as well as companies that do various kinds of metal fabrication. All of these companies ... would be tempted to pass the price increases along in terms of higher prices for their own products, but market competition will put limits on their ability to raise prices.”
Holland yard tries to stay hopeful
Jeff Padnos, co-owner and chairman of a much larger recycling operation based in Western Michigan, told public radio audiences in June that early trade retaliation was so swift that there were recycling materials already on the water that couldn’t be diverted and some shipments stacked up in the Chinese ports.
Since then, the dock situation has been resolved. But Padnos said the issue of who will pay some of the costs associated with those extensive delays still remains to be worked out.
The Padnos company employs about 600 people at 18 locations throughout Michigan and Indiana. It recycles metal, paper, plastics and electronics.
Padnos, like others, questions how anyone can think a trade war is easy to win. “I hope we don’t think we can insult our way to a solution,” Padnos said.
He said China amounted to about 60 percent of the company’s metal exports – and that market is essentially gone. Even so, he remains hopeful. “Nobody’s lost a job here. Nobody will lose a job here. We have to find other markets.”
“Our whole mission is to avoid throwing things away and making sure it gets used.” Jeff Padnos