Scrap metal traders seek to offset flagging demand from China

By Zachary Fagenson

MIAMI (Reuters) - Scrap metal processors and dealers are turning to Southeast Asia and other markets around the globe to offset falling demand from China amid concerns about tightening credit in the world's No. 1 industrial metal consumer.

Emerging economies such as South Korea, India and Thailand, where manufacturing is picking up are small pockets of strength for scrap merchants as China's economy slows, executives said.

"We have scrapyards in Thailand and we're seeing it increase while it's slowing in China," said Koen Schautteet, a trader with Belgium-based United Non-Ferrous Trading Ltd at the Bureau of International Recycling's (BIR) annual conference in Miami this week.

The comments come as concerns about credit in China resurfaced after Reuters reported this week that Qingdao, China's third-largest port, has launched a probe into potential irregularities in copper and aluminium stocks.

Copper prices hit three-week lows on Wednesday as traders worried the investigation could limit access to finance and stymie demand for raw materials, including scrap.

China's voracious appetite for metals used in infrastructure and construction has driven demand for the past decade, but signs have emerged that the pace of growth is slowing.

"Korea is doing well in terms of copper and lead, they take up 40 percent of material globally to make batteries and export them to Africa," said Manoj Solanki, director of Dubai-based SKI International DMCC.

"India is bullish because of the new president," he added referring to the election last month of Prime Minister Narendra Modi with a mandate to revitalise a stalled economy.

Margins for recycled scrap metals have become razor thin in the years after the global economic crisis shrunk production, damming the stream of scrap metals flowing to processors.

"We're doing twice as much work for less than half the amount of money," said Robert Stein, senior vice president of U.S.-based Alter Trading Company.

Flagging demand from China, which imports vast amounts of scrap metals such as copper and alloys, have raised the spectre of price rollbacks similar to 2008. In March, one U.S. scrap copper trader suffered "large" losses after a buyer in China defaulted on a deal.

Poor market conditions have roiled companies across the stainless steel supply chain from nickel producers to stainless steel makers.

"At the same time the demand for new steel and new metals ... has also been reduced," said BIR President Björn Grufman. "The same industry with the same capacity with the same numbers of employees suddenly (has) a much, much smaller amount of material to treat," he said.

(Editing by David Adams and Tom Brown)