The dragon reawakens

For recyclers, the first decade of the 21st century was marked by unrelenting demand for secondary commodities from buyers in the People’s Republic of China.

In the case of red metals and plastic scrap, in peak years, Chinese ports received between one-quarter and one-half of the ocean-bound trading volume. Millions of tons of recovered fiber flowed in annually, peaking at more than 29 million metric tons in 2015. A double-digit percentage of the global aluminum scrap trade also headed to China, and while the percentage of ferrous scrap trade was not as high, Chinese buyers competed with those from South Korea, Taiwan and Japan for ferrous scrap off the U.S. Pacific Coast.

In the last decade, the trading climate changed dramatically—not because Chinese manufacturers did not want scrap, but because China’s government enacted measures to stem the flow of what some of its government officials considered unwelcome trade. These measures culminated in a decree to ban the import of all scrap materials as of Jan. 1 of this year.

However, as 2021 begins, newer steps taken by the government have reopened the door for high-grade aluminum and red metal scrap, and a similar program is underway to allow more than a dozen ferrous and stainless steel scrap grades.

From garbage to resource

The journey of scrap materials in China from hot commodity to banned “foreign garbage” to a “resource” designation has presented difficulties to U.S.-based traders and processors, who have had to adjust with each regulatory change.

The biggest adjustments have been made by Chinese companies that had relied on imported scrap as the key component in their business models. Some of the firms were able to switch to different raw materials. Many others, however, “voted with their feet,” establishing facilities in other nations that mimicked the operations they had been running in China. Malaysia has been a beneficiary, with some Chinese business owners relocating processing and smelting operations to that nation.

The willingness of such companies to invest in these geographic moves helped portray what organizations such as the Washington-based Institute of Scrap Recycling Industries (ISRI) or the Brussels-based Bureau of International Recycling had long voiced: Scrap materials are not “waste,” and there is no viable business model that involves shipping “garbage” several thousand miles across an ocean.

Why the “foreign garbage” narrative was adopted by China’s central government is not entirely clear. Theories include that it essentially was a protectionist measure enacted because such a high percentage of containers arriving in Chinese ports contained scrap metal, paper and plastic. Another theory attributes the opposition to imported scrap to Chinese President Xi Jinping having watched a documentary that portrayed a particularly poorly managed (from an environmental, health and safety perspective) plastic recycling operation in the country.

The China Nonferrous Metals Industry Association Recycling Metal Branch (CMRA), based in Beijing, was among the organizations maintaining a dialogue with Chinese government agencies to keep the door open to overseas scrap materials. On the ferrous side, the China Association of Metal Scrap Utilization and the China Iron and Steel Association reportedly have played a similar role.

A recognition that China’s manufacturing sector would suffer if all scrap materials were instantly banned seemed to eventually find additional adherents within the Middle Kingdom. Redesignating some scrap as raw materials that can meet the requirements of a Chinese government-created standard has allowed, in the near term at any rate, the international scrap metal trade to return to China.

Keep it clean

Chinese government agency pronouncements leading up to the new scrap metal resource grades, and the phrasing in the specifications for those grades, make it clear the nation’s government wants to accept materials that appear clean and uniform. Nonmetallic content is particularly unwelcome.

The resource designations for copper, brass and aluminum scrap set purity standards in the 97 to 99.9 percent range, often higher than spelled out in ISRI specifications. Some processors and traders have told Recycling Today, however, that a welcome aspect to the new regimen is the phasing out of the China Certification & Inspection Group (CCIC) preinspection process.

One trader says, “Using CCIC involved time delays and spending money; but, in return, we received very little advocacy if a shipment failed inspection and certainly never a refund.”

Scrap shipments designated as resources will instead be subject to a visual inspection and a sampling process when they arrive at a Chinese port.

Per the copper specification, among the things port inspectors will be looking for are traces of “wood waste, waste paper, waste plastic, waste rubber, waste glass, stones and powders (dust, sludge, crystalline salt, metal oxides, fiber powder, etc.)” in the shipments.

The goal of the purity level means predominantly furnace-ready copper, brass or aluminum “raw materials that can be directly produced and used that meet the requirements of this standard” are intended to pass inspection, according to the GB/T 38471-2019 standard of China’s State Administration of Market Supervision and Administration of its National Standardization Administration.

However, mixed shredded metals are not being excluded, with a standard for zorba reportedly set at a minimum aluminum content of 91 percent, with a nonmetallic contaminant threshold of 0.9 percent (or a minimum 99.1 percent metals content).

By early December, traders had been reporting that shipments of red metal scrap were passing the inspection and sampling process within hours of arriving at ports such as Ningbo, China. (One trader indicates buyers are testing the waters with No. 1 copper shipments, showing hesitancy as to whether No. 2 copper can pass the inspection and sampling process.) Aluminum traders say that, likewise, aluminum scrap grades are being approved for import into South China.

In the processing sector, David Dodds of Ipswich, United Kingdom-based Sackers Recycling refers to the situation at the end of November as remaining “uncertain.” He adds, “Our sales channels assure us that the inspection is robust and safe, but it is a delicate balancing act as the cost of returning the container is very high.”

On the positive front, “The shipping lines are now beginning to quote and release equipment to major ports in China,” he says.

The resource designation and the implementation of new resource standards for ferrous and stainless steel has trailed the activity in the nonferrous sector by several months. However, the implementation process that was established for red metals and aluminum likely can be replicated for the steelmaking grades, potentially quickening the timeline for those buyers.

As of early December, the timeline for approval of the ferrous and stainless grades had not been established. The specifications for these grades do not directly mention nonmetallic contaminants. Instead, they focus on the size and origin of permitted cut and shredded grades.

A distant mirror

Recyclers and traders indicate the creation of the new resource grades is a welcome alternative to an overall ban on scrap or to the quota system, which they say provided a lack of predictability or clarity in 2019 and 2020. But to what extent will the new system bring back the heyday of high-volume scrap trading between the U.S. and China?

Many factors affect trade volume across the Pacific Ocean:

• the health of the U.S. economy, where scrap must be generated in surplus amounts sufficient to support a buoyant export market;
• the health of the Chinese economy, which continues to register growth, but where skeptics remain concerned about ongoing government and state-owned enterprise spending is yielding diminishing returns;
• the wider political relationship between China and the U.S. and how and whether the two nations put new punitive trade measures in place stemming from economic or political issues;
• the extent of processing and melting capacity that has left China for the Association of Southeast Asian Nations (ASEAN) region or other nearby nations and whether any of it will return to China;
• the enforcement of the new inspection and sampling process and whether it will be uniformly applied at Chinese ports or cause grief for traders and shipping lines that already have expressed reservations about financial liability; and
• the state of relationships between U.S. processors and traders and buyers based in China and whether all parties concerned are convinced a stable set of rules is in place that can stave off “pass the buck” situations concerning rejected shipments and subsequent container demurrage or repositioning charges.

Should all those circumstances break favorably, one more is likely to prevent the return to mid-2010s trading volumes: China’s ability to generate its own ferrous and nonferrous scrap.

On the ferrous side, several analysts have concluded that the nation has erased its scrap deficit and that requests for imports are tied to Chinese electric arc furnace (EAF) mill buyers wanting access to higher grades with chemistry requirements that are not abundantly available within China.

Demolition activity and end-of-life vehicle generation in China, likewise, are bringing to market more copper and aluminum scrap. However, it is less clear to what extent the nation is nearing nonferrous scrap self-sufficiency if it wishes to fully feed its own secondary aluminum or brass producers.

The potential for China to buy more than 4 million tons of imported red metal scrap—or the former peaks of aluminum or ferrous scrap—is thus muted by a number of ways the world has changed in just five years.

Volume limitations notwithstanding, in an industry sector that is best served when all trading opportunities can be explored, a pathway of any sort to the world’s largest collection of steel, aluminum and copper melt shop capacity is a welcome development in 2021.

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