Still in the market

Figures for the volume of secondary copper and brass produced in China show the rate of annual growth has slowed considerably compared with the boom years from 2004 to 2010.

However, China’s mills and refineries are churning out some 2.75 million tons of secondary copper made from scrap each year. Until the nation begins demolishing buildings constructed in the past decade and sending larger numbers of vehicles to shredding plants, it will continue to import copper and brass scrap from North America, Europe and other parts of the world.

Statistics gathered within China and comments and observations by scrap recyclers and consumers indicate that even if metals production is nearing a plateau, China’s copper, brass and aluminum producers will continue to bring in container loads of scrap as a key feedstock.
 

Clearing the fence

In 2012, secondary copper and brass producers in China imported more than 1.8 million tons of red metal scrap from the United States and the European Union (EU), according to the figures collected by the Eurostat agency.

Those statistics were presented by Alexandre Delacoux, director general of the Brussels-based Bureau of International Recycling (BIR), at the 2013 annual convention of the CMRA (China Nonferrous Metals Industry Association Recycling Metal Branch). The conference and trade show was Nov. 6-9 at the Chongqing International Convention & Exhibition Center in Chongqing, China.

Considering that China produced some 2.75 million tons of secondary copper that same year, the extent to which the nation’s red metals producers continue to rely on imported scrap remains clear.

It is possible China will import less copper-bearing scrap from the U.S. and the EU in 2013, possibly in part because it is generating more scrap domestically but also because economic growth has been slower and because of the customs and inspection protocol known as Operation Green Fence.

Nonferrous metal traders conducting business in China spent much of 2013 coping with the effects of Green Fence, a multiagency effort by the Chinese government to more closely manage the import of containerized scrap imports.

Speakers at the CMRA’s 2013 annual conference noted that the new procedures caused expensive delays for importers and exporters, though in the long run the changes may be beneficial for recyclers who play by the rules.

Operation Green Fence indisputably “affected the customs clearance of importers,” stated Wang Jiwei, vice president and secretary general of the CMRA.

China’s increased scrutiny of imported scrap came at the same time as increased taxes and increased energy costs for nonferrous scrap recyclers and secondary metals producers, noted Wang, making 2013 a difficult year for these companies.

Delays caused by Operation Green Fence were frustrating for metals recyclers, according to Wang, because “there are basically no smuggling cases for scrap metal” and substandard shipments of mixed waste do not try to enter the country labeled as scrap metal.

“Copper and aluminum are not smuggled into China, however we were affected [by the port slowdowns], and our customs declaration process has been slowed down,” he stated.

Speaking at the 2013 China International Scrap Conference, hosted by the China Entry-Exit Inspection and Quarantine Association Reused and Recycling Branch (CIQAR) in Ningbo, China, in early November 2013, Robert Stein of Alter Trading Co., St. Louis, asked Chinese government officials to consider the consequences of unfair trade barriers and hurdles.

Stein, who also is the chair of the BIR’s Nonferrous Division, said, “China has every sovereign right to impose rules designed to ensure that it receives the high-quality recyclables it desires (and is paying for) rather than hazardous or off-spec material.”

However, if those rules become too burdensome to recyclers around the world, they will seek out other options, Stein said. “Scrap metal, like any other commodity, eventually finds its way to the most efficient market of value, which, simply put, means that we regularly compare costs of getting our product to various markets as part of the decision as to where it will ultimately be shipped. All impediments that stand in the way of easy material flow cost us money and are obviously a part of the calculation. In today’s world of increasing costs, the compliance issues that we face in our shipments to China all too often dictate that our scrap metal either stays in the domestic market or is exported to countries other than China.”

At the CMRA event, the BIR’s Delacoux acknowledged that Green Fence caused difficulties, but he also played up the positive aspects of the initiative. “I think Green Fence shows that China can apply [these standards] because you can pursue quality,” he commented. “I’m very glad about that.”
 

Stamp of approval

While Operation Green Fence and other factors may result in a decreased flow of red metal scrap from the United States to China in 2013, at least one metals producer is vowing to increase its future purchases.

In a presentation at the 2013 CMRA convention, Jin Xiaoguang, deputy general manager of China Minmetals Non-ferrous Metals Co. Ltd., Beijing, said the company plans to ramp up its consumption of copper scrap to 200,000 metric tons per year by 2015.

Jin said it was part of the company’s wider effort to develop its recycling capabilities. “To access new materials, we have shifted our attention to recyclable metal,” he commented. “Every year we are increasing our purchases of copper scrap by 100 percent,” he added, noting that Minmetals now has purchasing offices in Macao, China, and Los Angeles.

The nonferrous metals production company executive said the growing secondary nonferrous metals industry in China “has made brilliant achievements, with significant progress.”

Jin said Beijing-based Minmetals, which has 17,700 employees and annual revenue of 325 billion yuan ($53.3 billion), is taking steps to meet Chinese government policy goals tied to the “circular economy” and other resource conservation and preservation measures.

He also called on governments around the world to regulate scrap materials accordingly. “Scrap should not be regarded as garbage but as resources,” Jin commented.

Within China, Jin urged greater investments in processing and smelting technology and in “standardization of how companies do business.” Chinese firms, he commented, “need to compete globally with international competitors.”

Regarding long-term demand for metals in the nation, Jin said “urbanization is accelerating.”

Another speaker at the CMRA conference portrayed the wider geographic footprint that is being established within China for secondary metals production. (See the sidebar “Mapping a new course” on page S40.)

At the CIQAR event in Ningbo, Stein offered a longer-term view of China’s nonferrous scrap import situation, referring to a report the BIR has produced in cooperation with London-based metals industry analyst CRU.

“As our report points out, one of the main reasons for this strong flow of copper scrap toward China is that refining costs have decreased there over the decade when compared to other parts of the world,” Stein said. “This has allowed Chinese scrap consumers to pay full London Metal Exchange (LME), or in some cases more than the LME price of copper cathode, for copper contained in scrap. Consequently, European and North American consumers have found it difficult to compete.”

The low costs of secondary nonferrous metals production in China, thus, means “CRU believes aluminum and copper demand growth will abate [in China] without necessarily meaning lower demand for scrap,” Stein said.

“Competition for this scrap will continue to grow, as probably will the trend toward aluminum and copper scrap flowing from the developed world to the developing and rapidly growing nations,” Stein continued. “While more scrap will be generated going forward through the aging of infrastructure and consumer goods, the primary supply of aluminum and copper will become more costly. As a result, scrap is expected to become more desirable.”

Eventually, however, the slowdown of China’s urbanization and its generation of obsolete consumer goods is expected to create an important tipping point. Stein added, “Perhaps the most eye-catching observation made in the report is that, and I quote, ‘Going forward, we expect that China will become a major exporter of nonferrous scrap,’ though the report’s authors go on to acknowledge that ‘the specific point in time that this is likely to occur is very uncertain.’”

Stein continued, “Because copper is used mostly in construction, it is likely that scrap generation will increase rapidly just as the infrastructure building phase of China’s growth winds down. Aluminum looks more secure in the long term as its end uses are much more diverse. Thus, CRU is predicting copper will reach a tipping point more momentous than that of aluminum, with the latter expected to see a much more gradual transition in terms of scrap flows.”
 

No guarantees

That looming tipping point notwithstanding, few analysts see 2014 as the year when Chinese nonferrous metals producers will greatly curtail scrap imports.

Among the causes of concern, however, are semiregular statements from the Chinese government regarding overcapacity within basic materials sectors.

The steel and cement industries are most commonly singled out, though the “electrolytic aluminum” sector has recently joined the list of offenders. The electrolytic process is typically associated with smelting ores rather than scrap, but any effort to cut capacity could cast a wider net.

The 71.9 percent capacity rate in this sector has caused the central government to issue guidelines to its own agencies, local governments and the aluminum industry to take action in a number of ways, including “prohibiting blind capacity expansion, clearing up illegal capacities, eliminating backward capacities [and] expanding export markets.”

In 2012, China imported nearly 1.4 million tons of aluminum scrap from the U.S., so an interruption in this trade would have a noticeable impact on the market.

Copper production is not as commonly identified as being in an overcapacity situation, and at least one duo of analysts says China’s government policy emphasis on urbanization and bolstering household purchases by its middle class will keep copper products in demand.

A late 2013 report from analysts Su Aik Lim and Laura Zhai of Fitch Ratings, Beijing and Singapore, states, “Copper is probably the only [metals] bright spot in the long term, with China’s increasing focus on energy-efficient products, which require higher copper usage per unit. Per capita consumption for the metal [in China] is still very low at over 5.5 kilograms (12.1 pounds) compared with developed nations’ peak consumption of well over 11 kilograms (24.25 pounds).”

The duo also notes that China’s copper ore reserves are limited, meaning red metals recyclers in the U.S. and other scrap surplus nations may well be filling up numerous containers bound for China again in 2014.

The author is editor of Recycling Today and can be contacted at btaylor@gie.net.