Starting in July this year, and for the first time, millions of tonnes of copper and aluminium scrap will be shipped into China not as waste but as merchandise, after the country announced its timetable for the renaming of high-purity non-ferrous scrap as recyclable materials.
“Getting confirmation of [the changeover date on] July 1 has made my day, if not my year. It’s huge for us scrap traders,” a Southeast Asian scrap trader source said.
This is the latest policy adopted by China, which is the world’s biggest scrap metal importer. It bought 1.42 million tonnes of copper and brass scrap, as well as 1.36 million tonnes of aluminium scrap, from overseas sources over the first 11 months of 2019.
While the new specifications will be disclosed later this month or in February, sources with direct knowledge of the matter have said that no significant surprises were expected.
“There is no significant revision at all for the finalized version,” one such industry source said. “Government officials are now fine-tuning the wordings in the proposals.”
In late August 2019, three proposals on ‘renewable copper material’, ‘renewable brass material’ and ‘renewable material for cast aluminium alloy’ were compiled by the China Nonferrous Metals Industry Association (CNIA) with the assistance of major scrap processors and the biggest buyers in China.
According to the draft proposals obtained by Fastmarkets, copper scrap eligible for renaming will be classified into seven categories of renewable materials: copper wire, copper processing materials, copper nodules, shredded & water-washed pure copper flakes, copper turnings, copper water tank, and copper plated with tin, zinc or nickel.
Loose copper content requirement
The minimum copper content of the products set by CNIA ranges from 96% for a type of copper nodule designated RCu-2C, up to the highest requirement of 99.9% for bare bright copper wire, designated RCu-1A.
On the surface, such standards appear high, but the minimum requirement for recovery rates must be put into the formula for better interpretation.
For instance, the minimum copper recovery rate for RCu-2C (No2 copper material) and RCu-5 (No1 copper turning) is only 92%, while that for RCu-6 (copper water tank) is even lower at 90%.
A Chinese scrap trader source suggested a look at a multiple of ‘copper content’ and ‘recovery rate’ to deduce the industry standard, implying that the new requirement was much more generous than expected.
“It covers all copper scrap currently going into the country, so effectively all copper scrap will be eligible under the new grading system,” the Southeast Asian scrap trader source said. “There is not a single copper scrap commodity we trade that can’t go to China with these new specifications.”
Below is a table translated and compiled by Fastmarkets, comparing the CNIA proposed standards of renewable materials and the specifications internationally adopted by the scrap certification circular from the Institute of Scrap Recycling Industries (ISRI).
The CNIA’s proposed standard even covered ISRI’s “dream” specification with 92% copper content, as well as some lower grades of birch/cliff from specific Asian countries with a copper content less than 94%.
The international definition for birch and cliff, two types of No2 copper scrap popular in China, requires a minimum copper content of 94%, according to ISRI standards.
Wide fluctuations have been seen over the past year in Fastmarkets’ monthly assessment of the copper scrap No2 copper (birch/cliff) imported into China, 94-96%, LME/Comex discount, cif China. This reached its widest level in April 2019.
Dynamic trading activity saw the discount widen at the end of the year after buyers returned to the market for the 2020 import quota release. The most recent assessment showed the discount at $0.35-0.40 per lb on December 30.
Quota system likely to remain for 2020
In July 2019, China imposed a quota system to determine the amount of both ferrous and non-ferrous scrap metal flowing into the country. Importers’ scrap procurement decisions, as a result, were entirely dependent on the environmental ministry’s allocation of quotas to specific companies.
Late last year, there were intense struggles among scrap suppliers to destock when major Chinese importers were all said to be running out of buying quotas.
While overseas-origin copper and aluminium scrap products could get into China as merchandise in less than six months’ time, the quota system is still expected to be in place in 2020, the first industry source said.
This means that such products could be traded into China via both means in the second half of the year.
“We are now expecting a big growth in copper raw materials imports,” a Chinese trader specializing in intermediate copper products said. “Hopefully, it will not take too long for customs and related departments to finalize the inspection procedures under the new categorizations.”
CCIC inspection unlikely for renewable material cargoes
Another key unknown in this picture is the inspection procedure for overseas cargoes of renewable materials destined for China.
Currently, these must undergo pre-shipment inspection to obtain a certificate issued by the overseas branch of the Chinese Certification & Inspection Group Co (CCIC) for the purpose of Chinese customs clearance.
In recent years, scrap suppliers have been complaining of the high cost of such processes because an inspector must be present during the entire loading process. Dramatic disruptions also happened when CCIC North America was suspended in 2018, leading to a backlog of scrap cargoes.
The CCIC pre-shipment inspection could cost as much as $200-500 per container, depending on the location and duration of the inspection, according to an estimate from the first trader source.
But because the scrap metal will no longer be regarded as ‘scrap’, it is highly likely that CCIC pre-shipment inspection procedures will be omitted, meaning that only on-port checks carried out by customs will be required to verify the cargo content and the level of impurities.
“We are still awaiting details on customs and agency instructions on how to carry out inspections on renewable copper materials,” a North America-based scrap trader said. “The administration procedures could make a big difference in cost.”