INTERVIEW: China Armco Metals seeks expansion funds to meet China’s growing scrap appetite
Shanghai 06 December 2012 05:55
The NYSE Amex-listed company anticipates double-digit growth in the country’s demand for the steelmaking raw material for the next two decades.
“Armco Metals plans to raise utility rates to almost double its output to 500,000 tonnes of ferrous scrap per year in 2013. It could further increase output to 1 million tpy in the second half of 2013 or 2014, given adequate scrap feed,” Yao Kexuan, chairman and ceo of the Lianyungang, Jiangsu province-based scrap company, told Steel First in a recent interview.
The company will not only enhance its scrap recycling networks in China but also increase its scrap imports, to ensure production. It plans to import 250,000 tonnes of scrap in 2013, as it will officially get its import licence in January.
As China’s steel reservoir grows, the supply of recyclable steel will increase. This will in turn boost demand for ferrous scrap as the Chinese government makes a push towards cutting energy use and pollution, Yao said.
“According to the government’s goal of 20% ferrous scrap penetration in 2015, assuming a steel output of 880 million tonnes then, China’s demand for scrap will double from 2010’s 83 million tonnes to 176 million tonnes in 2015,” he added.
“China’s accumulated steel exceeded five billion tonnes in 2007, and has been increasing by 500 million tonnes every year after that. By 2015, China will see a significant increase in scrap supply, and as a scrap company, we should get ready for it,” Yao said.
About 35-40% of steel produced in China goes to the construction sector, and it usually takes 25-30 years before these are recycled. China will soon enter its prime period for recycling construction steel.
Technological upgrades will also make industrial machinery obsolete faster, while the rapid growth in China’s vehicle population means more ferrous scrap will be generated from the auto industry, Yao said.
“Annual vehicle production reached 10 million since 2009. The recycling cycle is about eight to 10 years. We have almost reached the peak of vehicle recycling,” he said.
Surplus shipping capacity will also result in more ferrous scrap, he added.
“Let’s not forget ferrous scrap from household appliances, which make up 30% of China’s steel reservoir. We are expecting household appliances to be one of the major sources that add to the ferrous scrap supply jump,” Yao said.
Equipped with advanced shredders, China Armco Metals’ processing capacity is 0.8-1 million tpy, but its current utility rate is at a low 30-40% due to inadequate scrap supply.
“Tightened liquidity also holds the company back from raising utility rates because investments are required for the construction of scrap yards and facilities to house and process the scrap feed,” Yao said.
To overcome this, China Armco Metals is in talks with several companies including steel mills for possible loans and prepayment for longer-term scrap contracts.
“Armco Metals has secured a 60,000-tonne sales agreement with China Metal Recycling (Holdings) Ltd for the next three months. We have developed a long-term and strategic cooperation relationship with CMR, one of the largest scrap metal recycling companies in China,” Yao said.
“We are also expecting to sign an annual sales contract with Shagang Huaigang Special Steel for the supply of 150,000 tonnes of scrap, and we are in talks with Baosteel Resources over a similar pact for 300,000 tonnes of material. In addition to these, we hope to gain cash support from mills as well to facilitate the output,” he added.
“In 2010, after Armco Metals listed in the USA, we bought into iron ore assets in Australia, but it didn’t turn out to be a profitable move. The junior project couldn’t come on stream as planned due to a cost surge and tumbling iron ore prices,” Yao said.
Armco Metals bought a 19.9% stake in Australian Apollo Minerals in June 2010 for A$4.3 million ($4.5 million), and signed an offtake agreement for 15% of the iron ore produced. The shipment for its first ore had been planned for 2013 but it has since been delayed.