Aluminum scrap trade takes on challenges

A mid-July ruling by Indonesia’s Ministry of Trade officially affirmed that pre-export inspected recyclable commodities, including aluminum scrap, may be imported into that nation with an up to 2 percent threshold on impurities. The ruling was seen as a positive by the Washington-based Institute of Scrap Recycling Industries (ISRI).

“ISRI is grateful to the government of Indonesia for working with us to establish a technical regulation that addresses their interests to import only specification-grade raw materials,” stated ISRI Vice President of Advocacy Adina Renee Adler in a July news release from ISRI. “Our members also received tremendous support from the United States embassy throughout the process, and we thank them for their hard work and support.”

According to ISRI, the Indonesian government told the association in 2019 that its impurities threshold would be 2 percent at the outset and transition to 0.5 percent in two years. ISRI and some of its member companies then participated in advocacy efforts, including trips to Indonesia to brief the government and conduct training on the ISRI specifications, to help make the government more comfortable with retaining the 2 percent threshold.

Nonferrous scrap traders and brokers are involved in a similar information campaign with the government of Malaysia, which has become one of the world’s most active producers of secondary aluminum and buyers of imported aluminum scrap.

The southward shift

In 2013, the government of China began a series of actions that have seen it go from far and away the world’s largest of importer of aluminum scrap materials to one with some of the most severe restrictions.

Entrepreneurs, rather than state-owned enterprises, are predominant in China’s scrap processing and secondary metals sector. This entrepreneurial class has subsequently found ways to stay in the secondary metals business in part by establishing operations in countries like Indonesia and Malaysia.

Malaysia’s emerging status as a scrap processing and secondary metals production center can be seen in U.S. Census Bureau statistics published also by the U.S. Geological Survey (USGS).

In 2020, after China established a restrictive scrap import quota system, Malaysia brought in 418,000 metric tons of American aluminum scrap, while the 154,000 metric tons sent to China represented less than 37 percent of Malaysia’s total.

This year, China has shifted from the quota system to one where inbound aluminum scrap must meet a purity level that far exceeds that required in virtually every other nation. In the first four months of 2021, according to the USGS, just 7,980 metric tons of aluminum scrap meeting these requirements were sent from the U.S. to China.

That represented less than 5.5 percent of the whopping 146,000 metric tons of aluminum scrap that traveled from the U.S. to Malaysia in the first four months of 2021.

Considering the scope of automotive and other manufacturing activity in Malaysia compared with China, it seems clear the ingots produced from the Malaysia-bound scrap often are shipped to China. (Trade statistics maintained by the Chinese government have at times confirmed this.)

However, this booming era of nonferrous scrap trade between Malaysia and scrap surplus nations like the U.S. received an unwelcome jolt in March of this year, when a government-affiliated agency in Malaysia said new quality standards and inspection techniques could be on the way.

Ill-considered imitation?

In the first week of March, the Brussels-based Bureau of International Recycling posted links to documents and a presentation made by Malaysia-based SIRIM QAS International. That customs inspection agency claims to be owned by Malaysia’s Ministry of Finance.

The presentation and proposed SIRIM guidelines list scrap grades that would be prohibited and inspection procedures for remaining grades that, for industry participants, brought to mind all the measures that stifled the scrap trade between China and the rest of the world.

Introducing strict, China-style regulations to Malaysia would be a burden for global traders and in all likelihood disastrous for members of the Malaysian Non-Ferrous Metal Association.

That Selangor, Malaysia-based association and its member companies have been striving to build a relationship with Malaysia’s government (including a proposed resource-focused industrial park) to secure the secondary metals sector’s role in the national economy.

In an early June online BIR session presentation by Eric Tan, president of the Malaysia Non-Ferrous Metals Association, Tan said, “Many existing investments will go down the drain if the [import] guidelines enter into force,” and that Malaysia’s potentially bright nonferrous future will run into a wall.

Tan continued, “Our association is trying to convince the authorities” not to enact those guidelines, adding that opposition to scrap seems to stem from media and social media reports linking it to plastic in the ocean.

As currently configured, Tan said the guidelines’ requirement that scrap metal brought in must consist of 94.75 percent or more of one type of metal would completely prohibit trade in stainless steel, brass and cast iron alloys.

The guidelines remain under review as of early July, though the Washington-based Institute of Scrap Recycling Industries (ISRI) says its research indicates the Malaysian government is likely to maintain a tolerance for just 0.25 percent nonmetallic content in scrap metal shipments. (This seemingly will end the shipment of baled wire and cable or insulated cable and wire, or ICW, shipments to Malaysia.)

A regimented inspection routine (that would directly benefit SIRIM) represents another barrier to maintaining the current levels of trade if the new guidelines are adopted.

A trader who ships U.S. scrap to Malaysia says one customer asked to receive a shipment that involved taking several photographs during the container loading process, per the proposed Malaysian guidelines.

The trader says the operations department of the scrap processing company filling the order found the additional photo requirements slowed down the loading process to the point that making it standard procedure clearly would be cost-inefficient.

Recyclers and traders in the U.S. (as well as in Europe and other scrap-surplus nations) learned to navigate the Chinese inspection process when buyers in that nation represented a high double-digit percentage of the global scrap import business.

It is unclear to what extent processors or brokers will engage with a similar system if it is set up in Malaysia. In March, when the guidelines were posted, one trader told Recycling Today there will be “no need” to ship the same high grades to Malaysia now that they can be delivered directly to some Chinese ports.

Another trader worried that “a number of metal recyclers who moved from South China to Malaysia may be forced to move yet again.”

As of early July, that second trader, who markets European scrap to Malaysia and other buyers in Asia, says rumors are pointing to September 1 as the date when the proposed guidelines will become rules enforced at Malaysian ports. (He says he has not been asked to make any shipments in strict compliance with the guidelines.)

Should Malaysia follow through on mimicking China’s treatment of cargoes worth tens of thousands of dollars as “garbage,” either the geography of global nonferrous scrap trading will shift yet again, or its scale may shrink.

An executive of one of the world’s largest aluminum producers made a high-profile suggestion often heard in the scrap industry: that the sheer volume of transboundary metal trading may soon shrink significantly.

In a broadcast interview, Kumar Mangalam Birla, who oversees the $46 billion India-based Aditya Birla Group (which includes Atlanta-based aluminum producer Novelis), said going forward his conglomerate is unlikely to invest in “a company or a business where you source in one corner of the world and sell in another corner of the world,”

Birla added, “That’s a reset that has happened on account of growing protectionism.”

In the scrap and secondary metals market, if Malaysia’s government decides to mimic the barriers that were put in place in Beijing, it likely represents one more push of the same reset button.