Taiwan's Recycling Industry
Profits Mount for Green Giants
Newly ascendant recycling businesses are no longer simply selling scrap, but extracting prized materials like gold, in the process becoming one of the stronger concept stocks bucking the downturn.
Profits Mount for Green GiantsBy Jerry Lai
From CommonWealth Magazine (vol. 446 )
At the gala opening of Expo 2010 in Shanghai on May 1, Taipei was the only exhibiting city with a pavilion boasting two major exhibition themes, "sustainable resources" and "wireless broadband." It has also brought to the world's attention that Taiwan is not only a world leader in information and communications technology, but has also made impressive achievements in the area of environmental protection.
In March of last year, National Cheng Kung University Sustainable Environment Research Center deputy director Chih C. Chao, addressing a Canadian academic conference, noted that per-capita generation of rubbish among Taiwanese declined from one kilogram per person per day a decade ago to just half that today, leaving the island's incinerators "in the poorhouse." Taiwan's success in reducing the amount of waste its citizens generate has proven startling even for Western observers, and has resulted in a steady stream of inquiries as to how it was accomplished.
Recycling is not just environmentally sound practice, it can also be a profitable business.
Taiwan's three biggest domestic environmental technology companies – Super Dragon Technology, Solar Technology Inc. and Jin Yeeh Ding Enterprise Corp. have moved away from conventional "rubbish collection" recycling stations, providing added value through technical expertise, and are now listed on local equities markets. What's more, share prices for the three companies in April of this year had all more than doubled since the end of last year. In the first quarter of this year, operating revenue at each of the three companies showed growth rates of more than 60 percent, while profits soared between 200 and 300 percent.
These companies have latched onto the concept of "urban ore," moving from humble scrap dealers to now refining scrap metal and extracting prized commodities like gold, platinum and copper, then adding value and turning out high-value products for sale. With prices of raw materials rising in recent years, these eco-friendly stocks have seen their share prices rise, bucking the general downward trend.
In particular, as the economy has begun to recover, industrial metals commodities have increasingly been attracting investor interest. In April, the Global Industrial Metals Equity Index compiled by the U.S.-based Commodity Research Bureau was up 75 percent year-on-year from the previous April, twice the rise recorded by the Standard & Poor's 500 Index.
Taiwan's environmental protection and recycling industries possess two major advantages:
Advantage 1: Ahead of the Curve
As Chih C. Chao sees it, because Taiwan lacks natural resources, its people's instincts for the concept of recycling differ widely from those in Europe and the United States, as they have a firmer understanding of how to take advantage of secondary resources. Waste materials that would simply be incinerated in Germany are turned into construction materials in Taiwan.
Additionally, Chao found that Taiwan's environmental protection industry compared favorably with those of eight industrial nations in Europe and North America in terms of recycling technology and production efficiency, in some cases outperforming those advanced nations.
"For example, Taiwan can produce the copper sulphate used in electronics products, a prized raw material, from scrap copper," he says.
Consequently, Super Dragon Technology general manager Ken Wu stresses that his company's growth is not attributable solely to soaring commodity prices, as the company's technology and expertise have also played a major role.
Last year Super Dragon partnered in a cooperative venture with Japan's Kojima Chemicals Co., Ltd. to get into the platinum recycling business, in March of this year contracting with a German design team to construct a new NT$2 billion plant in Taoyuan County's Guanyin Rural Township.
To resolve the issue of sourcing needed raw materials, Super Dragon teamed up with the convenience store chain Family Mart.
At the end of March, Family Mart kicked off a campaign urging its customers to "swap scrap computers for five bottles of green tea; old cell phones for a tea egg." Consumers burdened with old, unused notebook computers or cell phones need only take them to their nearest Family Mart for recycling.
Wu pitched the cooperative proposal to Taiwan Family Mart Co. Ltd. chairman Pan Jin-tin during a meeting prior to the Lunar New Year holiday. Family Mart, which had an existing program for recycling used batteries, immediately agreed. For their next meeting, Pan brought along seven or eight top Family Mart executives, and the direction of the program was hammered out within an hour, with Pan to take the lead in implementing the plan. Within a month following the Lunar New Year holiday, the program was in full swing at Family Mart's 2,500 outlets across Taiwan.
Family Mart provides the retail space, using heavy-duty bar-coded mailbags to ensure safe handling of the materials, sending the materials collected back to its distribution centers on delivery trucks that would ordinarily be returning empty. Super Dragon is responsible for collection of the materials from Family Mart's distribution centers, sorting, and recycling. The fruits of this effort, including recycling incentive payments from the Environmental Protection Administration, are shared between the two companies.
In its first month, the program collected more than 10,000 discarded cell phones, more than 1,000 notebook computers and more than 40,000 DVDs.
Future growth in sources of recyclable raw materials will continue to be substantial. Taiwanese discard upwards of six million cell phones annually and Wu predicts that with numbers of higher-end phones flowing into the recycling market expected to increase in coming years, the metal content of those phones that can be recycled will get increasingly higher.
Advantage 2: Reverse Distribution
According to projections from international research and consulting group Gartner Inc., global sales of desktop PCs and portable computers will this year reach 360 million units; mobile phone sales will reach 1.2 billion units. If Taiwan can manufacture them, naturally it can come up with ways to break them down, recycle the materials and add value.
Wu estimates the profit from recycling a single cell phone at between NT$10 and NT$20, with a single PC bringing in just over NT$100. With the addition of government recycling subsidies, the business opportunity is massive.
How to efficiently go about collecting these sources of "urban ore" is the major challenge for this industry. In the past, managers of recently opened recycling collection stations in Taiwan have been threatened at gunpoint by local street thugs. The story has been the same in a variety of countries.
Integration of the recycling industry with Taiwan's powerful contract electronics manufacturers, to pool the resources of the two industries and create a new competitive advantage is the logical next step.
Last year, Wistron Corp. chairman Simon Lin sought out Super Dragon, initially acquiring a five percent equity stake in the company through private fund raising, and later drawing up plans to form a new company, a joint venture in which both sides will strike out into cities around the world to "pan for gold," joining forces to help brand-name manufacturers solve problems they encounter during the final stages of the recycling process and thus establish their environmental bona fides.
Last year, China's consumption of scrap steel was around 80 million tons, making the country the world's biggest producer and consumer of scrap steel. But China's demand will only continue to grow. Taiwan and other advanced nations can satisfy about half of their own demand just by recycling their rubbish; China's recycling efforts can only supply one-tenth of its domestic demand. At around US$400 per ton for scrap steel, if China can raise its recycling to international standards and supply half of its demand through recycling, that would represent a potential production value of US$100 billion. This massive potential business opportunity has attracted a number of major Taiwanese companies to head for China early to establish rubbish collection operations and processing plants.
For the environmental protection and recycling industries to continue developing in Taiwan, the biggest challenge seems to be keeping a low profile. Given how local resident protests recently shut down Da Fon Environmental Technology Co. Ltd.'s Hebei Recycling Station in Taichung, any talk of turning Taiwan into a "recycling center" will draw a quick interruption from Chao, who fears provoking environmental groups into protesting Taiwan's becoming a "trash island." Taiwanese law also currently prohibits importation of scrap metals.
With past consultation from the Industrial Technology Research Institute, Chao believes most decent companies in the industry have been able to enact controls to keep their pollution to a minimum, with some, like Super Dragon, even boasting zero waste emissions. Inside these plants, they are even cleaner than the majority of manufacturing concerns, he says.
Taiwan's Environmental Protection Administration has currently established environmental protection research parks in Taoyuan, Hualian, Tainan and Kaohsiung, and is in talks with the government of South Africa to process that country's waste. Taiwanese companies already have the capital and the technology – it merely remains to be seen whether the public will accept this influx of materials for recycling and whether they are psychologically prepared to accept this new "green" gold mine.
Translated from the Chinese by Brian Kennedy