Boom times for fence builders

The booming economies of Asia host nations with scrap deficits and a genuine hunger for nonferrous scrap. In the past several years, these market forces have been countermanded by regulatory dictates, however, that often impinge on the flow of aluminum and copper scrap from surplus nations to those with a deficit.

Actions by the People’s Republic of China have been the most sweeping and have had the greatest impact on global markets, considering the size of that nation’s economy and its previous hunger for imported scrap.

In the past few years, entrepreneurs based in China and neighboring nations often have set up shop outside China’s borders to keep the scrap streaming in so it can be converted into the ingots, billets and cathodes needed to power Asia’s sizable demand for metal.

Malaysia, in particular, has seen its scrap processing and secondary metals production sectors blossom in the past few years. However, environmental and trade concerns (perhaps boosted by protectionist lobbying from regional primary metals producers) have spread to Malaysia, creating the prospect of new barriers for United States-based processors and traders.

A southward shift

In 2013, the government of China began a series of actions that have seen it go from the world’s largest of importer of scrap materials (nonferrous, paper and board and plastic) to one with some of the most severe restrictions.

It seems difficult to make an economic case for the pivot. In the metals realm, urbanization, infrastructure spending and other factors that lead to the intense use of metals have continued in China in the subsequent eight years, even as that country’s government squeezed out nonferrous scrap imports.

Reasons for the pivot are not always clear in the single-party Chinese state, though environmental reasons and an unwillingness to accept “foreign garbage” were offered most frequently.

While primary metals producers in China often are state-affiliated companies, entrepreneurs have dominated in the scrap processing and secondary metals sector. This entrepreneurial class, being well-aware that shipping containers full of high-value copper and aluminum scrap are not filled with “garbage,” has tried to find different ways to stay in the secondary metals business.

Many such companies relocated, with Malaysia often being their destination. Malaysia’s emerging status as a scrap processing and secondary metals production center can be seen in U.S. Census Bureau statistics that also are published by the U.S. Geological Survey (USGS).

In 2019, about 128,000 metric tons of unsegregated alloyed red-metal scrap headed to Malaysia from the U.S., while just 7,770 metric tons headed to China. The next year, the discrepancy was not quite as large but still sizable, with 23,300 metric tons of scrap in this classification heading to China versus the 101,000 metric tons that were shipped to Malaysia.

Higher grades of red metal scrap (No. 1 and No. 2 copper) had better success getting into China in 2019 and 2020, when the country’s import quota system was in place, though the smaller nation of Malaysia pulled even with China as far as importing scrap designated as “other” in the unalloyed copper category.

The aluminum scrap situation shows an even larger skew toward Malaysia. In 2020, under the 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 what is 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 represents 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 were then most often shipped to China. (Trade statistics maintained by the Chinese government have at times confirmed this.)

This booming era of nonferrous scrap trade between Malaysia and scrap surplus nations such as the U.S. received an unwelcome jolt in March of this year, however, 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 (BIR) 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, Chinese-style regulations to Malaysia would be a burden for global traders and, in all likelihood, disastrous for members of the Malaysia Non- Ferrous Metals 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, Eric Tan, president of the Malaysia Non-Ferrous Metals Association, said, “Many existing investments will go down the drain if the [import] guidelines enter into force.” He then added that Malaysia’s potentially bright nonferrous future will run into a wall.

“Our association is trying to convince the authorities” not to enact those guidelines, Tan said. He added that the opposition to scrap seems to stem from reports linking scrap 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 were under review as of early July, though the Washington-based Institute of Scrap Recycling Industries (ISRI) says its research indicates the Malaysian government likely will 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 in Malaysia.

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

The trader says the operations department of the scrap processing company filling the order found the additional photos slowed 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 that 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 to buyers in other Asian nations, says rumors are pointing to Sept. 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 could shrink.

An executive of one of the world’s largest aluminum producers made a suggestion often heard in the scrap industry: The sheer volume of transboundary metal trading could 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.”

In the interview, 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 soon decides to mimic the barriers that were put in place in Beijing in the past, it likely represents one more push of the same reset button.

The author is senior editor with the Recycling Today Media Group who can be contacted at btaylor@gie.net.