The major project, including the controversial process of scrap dismantling, was approved despite opposition from the Malaysian market on how the country should avoid being a ‘dumping ground’ receiving scrap unwanted by China.

The facility will be able to process up to 150,000 tonnes per year of copper scrap and should be complete in one year’s time, the first company source said.

The major feed will be insulated copper wire, also known as ICW, which involves plastic waste. It is categorized as category-7 scrap, which has been prohibited from entering China since the beginning of 2019.

Refined copper capacity could reach 100,000 tonnes for the facility, a second source told Fastmarkets. The major product will be copper cathodes, instead of intermediate products such as copper ingot and blister copper as expected, the source said.

Exactly one year ago, Fastmarkets reported the leading Chinese copper smelter’s plan to set up metal concentrates blending and scrap processing operations in Southeast Asia.

“It took over one year to receive the official approval from the Malaysian government because scrap imports have become an increasingly sensitive issue in the country,” the first source said.

Since China stepped up its copper scrap imports restriction - including a 25% blanket tariff on United States recycled metal, a complete ban of category-7 scrap and a quota system to curb the inflow of high quality scrap - a substantial amount of scrap has been diverted to neighboring countries.

As a result, small-scale scrap dismantling and processing yards have been springing up in Malaysia. Yet many facilities have been operating without licenses and proper anti-pollution standards and local opponents have voiced concerns over the environmental impact.

“Many of these illegal yards are not paying taxes, their emergence is also becoming a headache for the local government,” the first source said.

Last September was the first time in 16 years that Malaysia surpassed China to become the top destination for US-origin copper scrap. Malaysia increased its intake of US copper scrap to 75,422 tonnes in the first nine months of 2018, nearly 37 times the 2,045 tonnes consumed in the same period in 2017.

The first ever formal approval could signify the government’s attempt to formalize and better regulate the growing recycling industry, the source added.

Jiangxi Copper’s Shenzhen subsidiary will oversee the project, the second source said.

"It could be challenging to source enough scrap in the future. Copper scrap is also well-sought by Pakistan-based and Indian buyers," the source said.

Parent company Jiangxi Copper had not responded to Fastmarkets’ request for comment at the time of publication.

Fastmarkets’ assessment for the discount for No2 copper scrap imported into China, 94-96% on a cif China basis, which is category-6 scrap, reached its widest level in three years at the end of April.

The discount has risen to 37-42 cents per lb, cif China, on April 29 versus 32-38 cents per lb a month ago on March 25 due to surging copper scrap availability and hesitant buying ahead of the temporary halt in Chinese imports in July.