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Financial crisis chills junk collectors

(Xinhua)
Updated: 2008-12-10 18:42

When Lehman Brothers filed bankruptcy in September, Mao Yanmei, a migrant rural worker in Beijing, had no idea her newly started scrap metal business would be affected by what happened on Wall Street.

"We lost three years of savings within a month. I can do nothing but watch copper prices fall day-by-day,"said the 28-year-old who pointed to copper piling up in a corner of her mud-floored home in the city's southern suburbs.

Special coverage: Coping with Financial Crisis Related readings:  Tax reform to help firms tide over crisis  Financial crisis forces migrants back home for work  Tightening wallet glooms China's spending plan

The copper cost Mao 54,000 yuan ($7,900) when she bought it in early September this year. Now, it is worth less than 22,000 yuan.

The slump in China's waste recycling market is closely connected to the global economic downturn triggered by the US credit crisis, said Guan Aiguo, chairman of the China Resource Recycling Association.

"Falling raw material prices on the international market and fewer bulk commodity transactions, plus weakening export and domestic demand, dragged down the waste prices," Guan said.

China's economy, which relies heavily on exports and investment, is experiencing a difficult time as its two-digit GDP growth declined to nine percent in the third quarter.

The country's industrial output grew 8.2 percent year-on-year in October, the slowest pace of growth in seven years. That was down 3.2 percent from September, according to the National Bureau of Statistics.

Against a backdrop of slowing external demand, a growing number of factory closures have been reported in the country's manufacturing centers such as the Pearl River and Yangtze River Deltas.

The effect of the global financial tsunami on China "is worse than expected", Premier Wen Jiabao was quoted as saying by the National Bureau of Statistics Director Ma Jiantang when he briefed his staff early in November.

At the far end of the industrial chain, Mao along with millions of her peers nationwide, were totally unprepared for the crisis.

Mao used to work in a clothes factory in Shanghai earning 800 yuan per month. Her husband was a security guard in the southern boom city Shenzhen, for a monthly salary of about 1,000 yuan.

Mao was laid off this summer after the factory cut production and downsized. After hearing stories of how their fellow villagers made good money from scrap deals in Beijing, the couple, from east China's Anhui Province, decided to try their luck in the city.

Their work started in September, after the conclusion of the Olympic Games. They rode flatbed tricycles through alleys and on the streets everyday, ringing bells to attract customers.

The Chinese people are used to stockpiling unwanted newspaper, plastic bottles and and scrap metal which can then be sold to migrant workers like Mao. Then, recycling firms do further processing and sell the waste as raw materials to manufacturing plants.

At first, the Mao's business seemed to be on the right track. The work was not so hard and they earned 2,000 yuan in the first month.

By October, the investment in scrap copper turned to be a disaster.

The price of #1 copper, with a 99.95-percent purity, averaged 38,355 yuan per ton in the second half of October, down 22.6 percent from the first half of the month and down 40.8 percent year-on-year, according to the Ministry of Commerce. The Shanghai Futures Exchange in October also saw 13 of the 20 trading days with limit-down plunges for copper futures prices.

The couple became almost penniless. Mao, two months pregnant, was afraid that they could not afford to feed the coming baby.

"I've wept many times at night, but I have to pretend to be strong in the daytime, for I don't want to pass more stress to my husband,"she said.

The sudden industrial downturn swept over China's major cities, ranging from western Xi'an, Zhengzhou and Guiyang to eastern coastal cities like Ningbo, Hangzhou and Xiamen, where stories of bankrupt scrap dealers and recycling firms are frequently reported.

Xu Chuanzhou, a junk dealer in Zhengzhou City, which is 700 kilometers away from Beijing, also saw his daily income of 80 yuan cut in half since September.

"I can earn only one cent from a can now," Xu said. He decided to stop purchasing pop cans and plastic bottles to prevent further losses.

Statistics from the China Resource Recycling Association showed during the third quarter, scrap prices dropped by half and 80 percent of the reclamation depots closed.

"Millions of urban and farm workers engaged in the trade are likely to lose jobs and the recycling rate has dropped by 70 percent, causing greater environmental problems," said a post on the association's website.

Analysts predicted consumption of raw materials in China would remain weak if industrial production growth continues to decline.

It is a domino effect along the industry chain.

"Orders from steel mills and chemical fiber factories have been fairly reduced from September, " says Huo Dong, manager of the Chuangye Recycling Co Ltd, located in Beijing's Chaoyang District.

It was reported that 60 percent of China's steel mills lost money in October. More than one third of the mills around Tangshan City, a steel manufacturing center close to Beijing, have stopped production.

Huo's company used to delivered 800 to 1,000 tons of scrap iron per month to steel mills in Tangshan, Baoding and other neighboring cities, but the volume has dropped to less than 400 tons since November.

"Only a handful of our old clients have placed new orders since November," said Huo, who now makes scrap purchases strictly according to orders.

Unlike big recycling firms, which are better informed and thus more risk resistant, individual scrap collectors and small junk depots are more vulnerable.

Liu mingqiang, 43, has been running a reclamation depot in Chengen Hutong in Beijing's downtown area for six years. He is considering shutting down his business.

"I've never undergone such a bleak period. Rent, staff wages and other expenditures have gone beyond the total income in the past two months, " Liu said. "I don't know if I can hold on until the crisis ends. "

Before October, Liu, formerly a migrant from the central Henan Province, earned more than 10,000 yuan per month, a quite enviable income compared with the average 1,500-yuan monthly salary of a college graduate.

Two weeks ago, he delivered three tons of scrap iron to his longtime business partner Xihongmen Recycling Company. "They made a hard bargain and even asked for a price below my purchase cost," said Liu, who finally gave up the deal and drove back his cargo.

Many in his trade could no longer suffer losses and instead turned to selling fruit or working in construction sites.

Liu had thought of returning to his rural hometown for farming, but still remained undecided. Mao and her husband also shared the same hesitation.

The Chinese government promised a stimulus package estimated at 4 trillion yuan to finance programs in 10 major areas over the next two years, including low-income housing, rural infrastructure, water, electricity, transportation, environment, technological innovation and rebuilding from several disasters, most notably the May 12 earthquake.

Experts believe huge investment in infrastructure construction may drive up the demand for raw materials. Updating of power grids across the country, at a cost of 4 billion yuan, in particular, will boost copper consumption.

"If the market continue to deteriorate, we may go back to Anhui, but I hope we can pull through till the favorable turn comes," Mao said.