WSJ on U.S. trash (and recycling stuff) ending up in China.
April 9, 2003
Junk Bond: How U.S. Trash Helps Fuel China's Economy
Surging Exports of U.S. Scrap Provide Raw Materials for Car Parts, Newsprint
By JON E. HILSENRATH
Staff Reporter of THE WALL STREET JOURNAL
In late February, nine-year-old Kevin Sayad finished a two-page homework assignment on fractions. After he went over it with his fourth-grade teacher and reviewed it with his parents, the homework was discarded at his New Jersey home.
But that wasn't the end of the line for the boy's homework. When he tossed out that piece of paper, Kevin was actually tossing in a small contribution to the trade between two economic giants, the U.S. and China.
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Kevin's scrap ended up in a Clifton, N.J., recycling plant on March 5. There, it was dumped into a giant green paper baler, shoved with 1,500 pounds of other paper into a rectangular jumble bound by thick steel wire and stuffed into a shipping container destined for Ningbo, a port city on China's eastern seaboard. In China, the boy's discarded homework will be sold to a paper mill that gobbles up America's throwaways and spits out new paper products.
American exports to China are booming in an unlikely area: junk. Every year, tons of metal from discarded cars and old household appliances, paper from empty cardboard boxes and crumpled newspapers, and plastic from dumped soda bottles are processed, piled onto ships and sent across the ocean. There they become the raw material for paper mills, steel mills and other factories, feeding China's fast-growing, export-oriented industrial economy.
Last year, the U.S. exported waste and scrap to China with an estimated value of $1.2 billion, up from $194 million five years earlier, according to Commerce Department data. Scrap is now the nation's third-largest export to China, after airplanes and semiconductors and ahead of soybeans and computers. "We are the Saudi Arabia of scrap," says Robert Garino, director of commodity research at the Washington-based Institute of Scrap Recycling Industries. China has become the biggest customer for America's junk, buying 23% of the $5.2 billion in scrap and waste exports.
The trade in scrap offers a look into the complex dynamics between the world's largest economy, the U.S., and its fastest-growing economy, China. Because Americans are buying so much more from China than they sell there, the trade deficit with China is exploding. Last year, it rose 24% to $103 billion, the largest in history. Yet, despite the huge gap, U.S. exports to China are growing too. Last year, they were up 15% to $22 billion, increasing for everything from semiconductors to machine tools to oranges, and even to scrap and waste.
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Some of the scrap shipped to China stays there, to supply the nation's own booming economy. Other U.S. junk sold to the Chinese is destined for a round-trip; it will be made into products -- everything from toys to auto parts to polyester shirts -- by low-wage workers and then sold back to the U.S. This cycle provides inexpensive goods for American consumers but puts some U.S. jobs at risk.
Some see the scrap trade as an example of the global economy at its most efficient. The U.S., which consumes far more than any other nation, turns out a huge amount of waste; last year, one company, Pomona, Calif.-based America Chung Nam Inc., sold China U.S. scrap equal to the weight of 17 aircraft carriers. China, with a growing industrial base and a dearth of natural resources such as pulp or iron ore, needs the raw materials.
It also reflects China's rapid industrialization. In the 1950s, Communist Party founder Mao Zedong set unattainable goals for steel production, forcing peasants to melt down pots and pans in backyard furnaces. Millions starved during that failed effort to push China's agricultural society into the industrial age. Now that it is part of the world economy, China is melting down American pots and pans with remarkable efficiency. Within the next five years, China is expected to pass both France and the United Kingdom to become the fourth-largest economy in the world, behind the U.S., Japan and Germany.
At the same time China is building up its factories, the U.S. industrial base is struggling, in part because of stiff competition from abroad. Paper and steel companies, for example, are shutting down capacity in the U.S., as they try to stave off lower-priced foreign imports. In the last three years, U.S. employment in the steel and paper manufacturing sectors has declined by nearly 45,000 jobs, according to the Labor Department.
"Manufacturing is disappearing in America, which is a disaster," says John Neu, chairman of Hugo Neu Corp., a large New York scrap-metal recycling company. He sees both sides of the issue: while he worries about the loss of manufacturing jobs in the U.S., Mr. Neu says prices for his scrap have held up because of demand from Chinese buyers.
Overall, the domestic market for scrap is still far larger than exports. But exports are growing at a faster rate. Over the past two years, for instance, domestic use of scrap iron and steel has been about flat, while exports have risen 78% over the same period, according to the Institute of Scrap Recycling Industries. The increase in exports, however, hasn't eased some of the strains of municipal recycling; New York and other cities have recently cut back on curbside recycling because of the cost of running such programs.
The U.S. has plenty of junk to sell. It exported 2.3 million metric tons of scrap iron and steel to China last year, up from 246,000 tons in 1996, according to the institute. That's equivalent to the weight of about one million Ford Explorers. The U.S. shipped about 450,000 tons of scrapped plastic -- equal to about 14.5 billion empty plastic soda bottles -- to China last year, more than seven times the amount five years ago, according to Resource Recycling, an industry newsletter.
Last year, America Chung Nam, one of the largest scrap exporters, shipped more containers out of U.S. ports than did General Electric Co., Altria Group Inc. (formerly Philip Morris Cos.), and the DuPont Co. combined, according to PIERS Maritime Research Services.
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The journey of Kevin Sayad's homework assignment began in his family's kitchen. His mother, Laila Sayad, says her son's school tests end up pinned on the refrigerator. Homework assignments, however, are placed in a bag in the kitchen pantry and then taken by Kevin Sayad's father, Karim, to the local dump's recycling site. That's what happened to the fractions homework, in which the boy worked out the ratios of birds to worms on a two-sided sheet of paper.
Shortly after it was discarded, the Sayad family's paper trash was picked up from the site by Zozzaro Brothers Inc., which pays a small, fluctuating fee for such refuse. Every day, in a cavernous building at the company's recycling center in Clifton, N.J., bucket-loader trucks shove up to 600 tons of discarded paper and cardboard into giant balers. The bales of paper are then loaded onto containers by forklifts. About 95% of this material is trucked to port terminals in Newark, where it begins its oversea journey.
While other sectors in the economy are stagnant, things have been upbeat at the Zozzaro Brothers' recycling facility. Prices for corrugated cardboard have soared to about $95 per ton from $55 early last year, thanks in large part to demand from China. Prices for recycled newspaper have increased from $55 per ton to about $90. To be sure, this is nothing like the recycled paper bull market of 1995, when cardboard prices briefly soared to more than $250 per ton. And the war has caused prices to soften a bit recently.
While Zozzaro Brothers gets $90 to $95 per ton for the scrap paper it exports, it gets only about $65 to $70 per ton for domestic sales. Foreign buyers are willing to pay a premium for paper they can get from sources near major ports. After China, the biggest foreign purchasers of all kinds of U.S. scrap are Canada, the U.K., Korea and Mexico.
The boy's homework was included in a 24-ton heap of paper purchased from Zozzaro Brothers by a middleman firm, called Yao Yang Enterprises LLC, of Los Alamitos, Calif. Yao Yang, in turn, sold the container of scrap paper to a paper mill owned by Hangzhou Jinjiang Paper Co., located in a Chinese city called Linan, about 100 miles northwest of the port of Ningbo. It's a small city by Chinese standards, with a population of about 500,000; tea plantations sit in the green mountains that circle it.
The paper company, based in the center of the city, is going through a rapid growth spurt. It now produces 51,000 tons of newsprint a year and 10,000 tons of other paper used in furniture production, all sold in China. "The demand from the domestic market has grown out of what we're able to supply," says Fang Xiaoming, director of the company's import/export department. The company plans to increase its total capacity nearly four-fold within the next two years. Up to 90% of the waste paper it uses comes from the U.S.
Within a few weeks, Kevin's homework will be fed into a Jinjiang Paper Co. machine. It will be cut up into fine pieces, bled of its ink, added to a slurry mixture that breaks it down to its original fibers and then dried. It will emerge as newsprint and be sold to a Chinese newspaper company. The fourth-grader says he had no idea that a simple piece of paper could take such a complicated journey. "That's pretty cool," says Kevin, whose favorite toy, a Nintendo Gameboy, is made in China.
Write to Jon E. Hilsenrath at jon.hilsenrath@wsj.com
Updated April 9, 2003
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