Jacky Chun gets dirty and turns scrap into gold

PUBLISHED : Monday, 17 August, 2009, 12:00am
UPDATED : Monday, 17 August, 2009, 12:00am

Scrap king Jacky Chun Chi-wai was once ashamed about telling his daughters what he did for a living.

'Not many people recognised the value of scrap and some of them in the past viewed metal recyclers as scavengers,' said the co-founder and chairman of China Metal Recycling (Holdings). He used to tell his three daughters, aged between 11 and 14, that his company was a steel trader.

Thankfully, those days are long past. While waste is the stuff most people take out every night in a black plastic bag, for Mr Chun it is the gold that helped him build a HK$9.68 billion business empire.

China Metal is the country's biggest scrap metal recycler with annual revenue of HK$6.5 billion last year. It is also the first scrap metal recycler listed on the Hong Kong stock exchange after its HK$1.78 billion initial public offering in June. The 43-year-old chairman is proud that his business brings a handsome profit while at the same time helps protect the environment.

With growing awareness of environmental protection and energy conservation, his daughters are now more likely to see him as a hero. 'People now call us an environmental protection company. Mindsets are changing,' he said.

China Metal's net earnings rose 72 per cent to HK$307.9 million last year. Mr Chun's personal wealth, based on his 60.7 per cent holding in the company, is HK$5.88 billion.

Mr Chun's story is typical of many mainland billionaires who started businesses from scratch. Born in Guangzhou, he worked in a state-owned trading company where he met his wife Lai Wun-yin after completing his secondary education in 1982. The couple traded steel and cars when such products were still controlled by strict quotas under the old planned economy.

Mrs Chun is co-founder and non-executive director of China Metal. The couple set up their own steel trading company in 1989 when the government relaxed rules on private businesses in the sector. They moved to Hong Kong in 1993 where they started the scrap metal business.

With China's growing steel capacity, Mr Chun saw enormous potential for scrap metal as an alternative to iron ore. The mainland has to import most of its iron ore while scrap steel supply increases as more steel products reach the end of useful lives.

Their first scrap metal recycling plant in Guangzhou, which had an annual capacity of 500,000 tonnes, began production in 2003 and recorded a profit in its first year of operation. The company was the first on the mainland to use large-scale automated metal recycling facilities, such as an industrial shredder.

China Metal now has recycling facilities in Guangdong, Jiangsu and Hong Kong with an annual capacity of 1.6 million tonnes. That will double in the next few months with plants in Tianjin, Zhejiang and Jiangsu coming on stream.

Mr Chun plans to expand his business to more steel-producing provinces and aims to acquire smaller rivals. A recycling facility is set to open in Hubei next year with annual capacity of 500,000 tonnes. Plants are also planned for Guangxi and Shandong.

He anticipates the scrap industry's tens of thousands of small players will consolidate, as has happened in Western countries such as the United States and Britain, where large-scale and automated facilities are the norm.

'Only in this way can the recovery rate of resources (scrap) increase, which is good for society,' he said.

Mr Chun attributes his success partly to luck and devotes considerable time to charities. He is a director at Yan Chai Hospital and has donated millions of dollars to build hospitals and schools in mainland rural areas.

Despite his busy schedule, Mr Chun still finds time for his family and spends every Sunday with his wife and daughters.

What first drew you to the metal recycling business?

Before I entered the industry, I was engaged in steel trading for 10 years and saw rapid growth in China's steel demand and production growth. Steel output in the country increased to 500 million tonnes last year from 50 million tonnes in 1995. Its own iron ore supply was not enough to support such capacity growth. I saw the enormous market for scrap steel, which could replace iron ore as a steel-making raw material. The use of scrap steel only accounted for 8 to 9 per cent of steel production on the mainland compared with more than 40 per cent in Western countries at that time (in 2003).

What were the biggest difficulties in the early years?

The hardest task was to persuade local governments to grant licences and land close to ports for the recycling business. We were viewed as scavengers and government officials wondered how the business could make money and how it would help the government reduce waste. We needed to sell them the environmental protection concept so we brought them to the US to show them how large-scale and automated metal recycling facilities work.

Another tough job was to secure bank loans. At that time, not many banks knew about the scrap metal recycling business. But the machinery was expensive - about US$2.3 million at that time. Without collateral, it was not easy for us to lobby banks to lend us money. It was great that DBS Bank granted us loans to launch the business.

How did you become so successful?

Firstly, we had first-mover advantages. Metal recycling is a much localised industry. Most local governments probably only grant one or two licences and land sites to operators. When you have this, it is hard for others to enter the market.

Secondly, our production facilities are strategically located in areas with high demand for recycled scrap metal, strong supply of raw materials and convenient access to water transportation. All our facilities have advanced equipment which is efficient. Thirdly, we have a strong profile of quality customers and an expanding procurement network. And we have an experienced and dedicated senior management team.

Is consolidation inevitable in metal recycling on the mainland?

Scale is a key to profitability in such a highly fragmented low-margin industry. But China has tens of thousands of participants that operate mostly as small and family-run companies. The top five players account for only about 7 per cent of the market. But when you look at the experience of Western countries like the US and Britain, you'll find big players with large-scale and automated facilities dominating the market. China is sure to follow suit. I forecast the number of players in China will be cut to five to 10 in the next 10 years.

How important is metal recycling?

Metal recycling can help preserve resources and reduce energy consumption. In the future, how we handle the increasing amount of waste will be one of the biggest headaches for the mainland government, especially toxic electronic waste such as televisions and computers. In the long run, China should adopt a 'user-pays' policy like other countries to tackle the problem.

Can you share the pros and cons of working with your wife?

In the start-up stage, my wife was mainly in charge of the company's financial department, which is quite common in family-run companies. But with the growth of the company, my wife's involvement has been reduced and she now only acts as a non-executive director. Her main duty now is to take care of me and our three daughters, and let me concentrate on my work.

Why are you so enthusiastic about your charitable activities?

Even in modern cities like Hong Kong, the gap between the rich and the poor is still very large. As a responsible citizen, I need to offer help to people in need.