ASIA COPPER WEEK 2017: China’s waste thresholds plan could have massive impact on copper scrap market in 2018 - Lion

China’s plan to adopt strict waste thresholds on a number of imported scrap products from March 2018 will, if confirmed, have a massive impact on the copper scrap market for both prices and shipment flows, Michael Lion, president of Lion Consulting Asia Ltd, warned.

“A few weeks ago, a new regulation in China put the maximum acceptable threshold of hazardous elements for copper scrap imports at 1%. If implemented, this could have massive and immediate effects,” Lion, who has 50 years of experience in scrap trading, said at Metal Bulletin’s 13th Asia Copper Conference in Shanghai, China, last week.

“Except millberry, no other copper scrap can conform to the regulation,” he explained.

Currently there is no threshold of impurities but in practice copper scrap impurity levels have reached or even exceeded 2%, he added.

China announced to the World Trade Organization (WTO) on November 17 that it intends to adopt thresholds of 1% for impurities allowed in non-ferrous scrap imports to China and 0.5% for ferrous scrap imports.

The proposal, which replaces a previous plan for thresholds of 0.3% and would apply from March 1, 2018, have drawn criticism from recycling industry organizations including the Bureau of International Recycling (BIR).

The WTO and various governments have asked Beijing to implement changes over a transition period of up to five years but Lion, who is on BIR’s advisory board, called on all scrap users in China including copper smelters to try to stop the new regulation.

“I beg you to consider that the recycling industry, which has matured a lot in past years, is part of the solution, not part of the problem,” he told delegates during Asia Copper Week.

“I don’t think I am being alarmist when I say that this new regulation could have very disturbing and worrying implications,” he added.

The changes would cause dislocation and disruption in copper flows because scrap supply generated by mature economies would have to find a new home while Chinese consumers would have to look for alternative options, including importing more concentrates and refined copper, Lion explained.

There would also likely be further investments in scrap collection and scrap processing facilities in China but these “can’t be recreated overnight” and thus would take time to make a material difference, Lion said.

The changes, if and when confirmed, would also have an “enormous effect on short-term pricing”, as scrap imports would fall, leaving China short and the overseas market oversupplied, Lion warned.

So far copper scrap prices have not moved significantly but the impact could be substantial should the new regulation be confirmed, he said.

According to Metal Bulletin’s assessment for No. 2 copper (Birch/Cliff) of US or European origin with copper content of 94-96%, the discount to London Metal Exchange or Comex copper prices narrowed slightly to 32-33 cents per lb ($705-728 per tonne) on a cif China basis on November 27 from 33-35 cents per lb at the end of October.

Other policies

China has made a series of policy changes this year under President Xi Jinping, including significant reductions in the categories and volumes of waste imports.

From January 2018, trading firms are no longer granted import quotas because all scrap business must occur between overseas sellers and domestic end-users directly. In addition, the import of category 7 copper scrap will be reduced in 2018 and banned from 2019.

“The impact is uncertain - estimates place type 7 scrap imports at 200,000-400,000 tonnes per year of copper content,” Nicholas Snowdon, analyst at Standard Chartered, said last week. “It is likely to provide support for higher cathode and concentrate imports in 2018, but volumes remain uncertain.”

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