China is redrawing the global copper scrap map
China’s war on “foreign garbage” continues apace.
Less than three years after China told the World Trade Organization it was going to ban imports of “solid waste,” it is close to doing just that.
Plastic imports have already stopped and the rest of the world is now trying to figure out what to do with all the stuff it has been shipping to China for recycling.
Metals are next. Imports of copper, aluminium and steel scrap are being steadily reduced under a quota system ahead of a complete ban at the end of next year.
Unless, that is, someone can persuade Beijing that “scrap” is not “waste”. Global trade flows risk being lost in translation between the Chinese and English definitions of recyclable metal.
China’s own copper industry has been lobbying Beijing to reclassify higher-grade copper scrap to prevent a complete halt to a raw material source that accounted for around 10% of the country’s copper consumption last year.
Beijing is still thinking about it.
Even if it does agree, the expected purity thresholds will be so high that only a fraction of current scrap imports will qualify.
Moreover, global trade flows have already been disrupted and the copper scrap map is now being redrawn with implications both for China and the rest of the world.
China began its copper scrap clampdown by moving “Category 7” material to the list of restricted imports in December 2017 ahead of a complete ban at the end of 2018.
The rest of the world has developed a nuanced classification system for the myriad forms of scrap copper, but in China it’s the numbers that count.
“Category 7” covers material typically grading less than 60% copper and requiring dismantling prior to use. Think unstripped wire, engine parts or radiators.
The impact on China’s copper scrap imports last year was a 32% slump in volumes to 2.4 million tonnes, from 3.6 million.
Flows from every major supplier country contracted with the notable exception of Japan, which was the last to destock lower-grade material ahead of the ban.
Next up is “Category 6” material, some of the highest-purity traded scrap, grading up to 95% copper. It was moved to the restricted import list in July this year with a full ban due at the end of next year.
Imports have plunged further by 32% to 1.3 million tonnes in the first 10 months of this year.
United States hit the hardest
Most affected has been the United States, which has historically shipped 70-80% of its copper scrap exports to China.
The impact of the “Category 7” ban was compounded last year when China slapped a 25% tariff on U.S. copper scrap in an early round of the Sino-U.S. trade dispute.
Imports of U.S. copper scrap were just 80,000 tonnes in January-October. They were running at over 500,000 tonnes per year as recently as 2017. Even the trickle that is now entering the country is largely designated as a “processing” import, implying it is being re-exported in different form.
The United States has responded by redirecting low-grade scrap exports to Malaysia for cleaning and processing prior to onwards shipment to China. Exports jumped to 120,000 tonnes last year from just 5,600 tonnes in 2017.
No surprise then to see Malaysia now topping the list of China’s copper scrap suppliers. Imports have mushroomed to 238,000 tonnes in the first 10 months of 2019, from 90,000 tonnes for the whole of last year.
Meeting the grade
While China’s scrap import volumes have plunged, purity levels have risen as lower-grade material has been locked out.
The average copper content of China’s imports, a calculation derived from volume, value and copper price, has surged to 83% so far this year, from 42% for all of 2017.
The numbers suggest that, in terms of copper content, the drop in last year’s scrap imports was pretty marginal.
However, secondary refineries work on volume throughput and there is evidence that they have been switching to alternative feeds such as remelt ingot, imports of which been surging, according to China’s state research house Antaike.
Moreover, the volume hit will only get worse as imports of “Category 6” scrap are steadily restricted by quotas ahead of next year’s ban.
Even if Beijing agrees to reclassify some scrap as “high-grade recyclable copper”, few suppliers will be able to meet the cut-off threshold, believed to be around 95-96% purity.
The Malaysian offshore processors seem to be anticipating this by moving towards production of something akin to blister copper, typically grading over 98%.
It seems unlikely, however, they or other suppliers of semi-processed copper can fill the looming scrap gap.
There is another equally important side to this scrap story.
The global trade in copper scrap shrank last year with EU exports tumbling 24% and U.S. exports by 10% even with the redirected trade with Malaysia.
Analysts at Goldman Sachs have estimated some 300,000 tonnes of contained copper in scrap went missing in 2018 due to the lost trade with China. (“A Primer on Copper Scrap”, April 2019)
If a similar-sized copper mine had gone missing, it would be headline news. This being the opaque scrap sector, few have noticed.
The best bet is that this material, presumably low grade, is still sitting in traders’ yards, although it’s possible that the copper has literally returned to the ground in the form of landfill.
Wide price discounts for copper scrap in the United States, particularly for lower-grade material, suggest the country is struggling to digest the surplus created by the collapse of the China trade.
There are signs that investment is starting to flow into expanding domestic processing capacity. Argos Media reported last month that copper rod and wire producer SDI La Farga will add a second scrap melt furnace at its New Haven plant in Indiana.
There is even the possibility of a new secondary refinery in Ohio, according to Fastmarkets. It would mark a historic moment given both the United States and Europe saw most of their scrap refining capacity close in the 1990s as it migrated to China.
Just as China’s ban on plastics is forcing the rest of the world to take responsibility for its plastic usage, the creeping ban on metals appears to be stimulating the re-shoring of scrap processing in the developed world.
If so, it’s not just the Chinese who are discovering that “scrap” isn’t “waste.”
(By Andy Home; Editing by Susan Fenton)