Billion dollar business set for scrapheap under Malaysia’s ‘zero’ impurity policy

Imports of non-ferrous and ferrous scrap in Malaysia will be effectively banned from November under a new policy that sets stricter impurity thresholds than those applied by other Asian countries, a major industry body has told Fastmarkets.

Despite industry opposition, the Malaysian government has decided to set a 0% impurity threshold for three major scrap import products into the country, including “ferrous waste and scrap; remelting scrap ingots of iron or steel” (HS Code 7204), copper waste and scrap (HS Code 7404) and “aluminium waste or scrap” (HS Code 7602). The new policy comes into force on October 31.

“Scrap containers destined for Malaysia are already [being diverted because of] these uncertainties,” the secretary general of the Malaysia Non-Ferrous Metals Association (MNMA), Alfred Tan, said in a video interview with Fastmarkets on Thursday September 17.

This could mean an outright cut in supplies of copper, aluminium and steel raw materials to Malaysia, which is a regional recycling hub and the principal destination for US aluminium scrap exports.

The industry at stake is huge. In 2020, $578 million-worth of copper scrap, $594 million-worth of aluminium scrap, and $984 million-worth of ferrous scrap were imported into Malaysia, according to the country’s customs data.

Highest bar ever
The zero-impurity bar set by the Standards and Industrial Research Institute of Malaysia (SIRIM) is arguably the highest in the world.

In May 2019, China vowed to “say no to foreign waste” and in November 2020 it set a 1% impurity rate for non-ferrous scrap imports and a 0.5% rate for ferrous scrap imports. At the time, those standards were widely criticized. Indonesia then introduced a stricter impurity threshold for copper scrap this July, at 2%, with a potential adjustment to 0.5% eventually.

“Zero impurity is a slogan, an ambitious goal that we should all work toward. Look at the nature of scrap metal products [from scrap generation to its arrival at the destination]. Their surfaces naturally carry slight oxidization after the month-long shipment,” Eric Tan, president of MNMA, said.

Instead of aiming for zero “hazardous waste,” which would include the aluminium and copper dust that inevitably exist in scrap products such as Zorba - shredded non-ferrous scrap with predominantly aluminium content - an effective way of regulating the industry could be to improve the recovery of metallic content, Tan said.

For instance, lower-grade copper scrap such as Shelmo - shredded electric motors nicknamed ‘meatballs’ - have an extremely high recovery rate of copper metallic content, which could mean effective recycling without creating extra waste. Such material should be allowed to enter Malaysia, Tan said.

Other than the zero-impurity tolerance, an outright 94.75% metallic content barrier is also required for these three scrap metal products under the new policy.

Chinese capacity to uproot again; US scrap in search of new home
China implemented in January 2019 a total ban on category-7 copper scrap imports which require dismantling, including scrap cable, scrap wire and scrap automotive parts.

Since then, a significant amount of dismantling capacity has relocated from Guangdong and Taizhou to various parts of the world, including Malaysia.

As as a result, inflows of insulated copper wire (ICW) into Malaysia have grown strongly, assisted by expanded capacity for dismantling and scrap smelting, and the sister business of plastic recycling, over the past two years.

These investments could well “go down the drain,” as Eric Tan told the Bureau of International Recycling (BIR) in June.

The 94.75% requirement not only means that ICW would be denied entry to Malaysia, it also means that Chinese recycling businesses would again have to relocate their facilities, dashing hopes that furnaces which could smelt scrap to copper ingots - a substitute for blister copper and anodes - would be set up in the Southeast Asian country in less than two years.

Also in search of new home would be the massive amount of aluminium scrap, including Zorba shipments from the US.

In the first seven months of this year, 284,927 tonnes of US aluminium scrap were shipped to Malaysia, up by 28.27% from a year earlier. The country has recently been the leading destination for US aluminium scrap, according to US government data.

Malaysia is the second-biggest copper scrap destination for US shipments, receiving 113,331 tonnes in the first seven months of 2021.

To establish new dismantling and smelting capacity in neighboring countries, where some Malaysian companies were already considering for relocation, would take months and could cause delays in the scrap supply chain, given the scale of the sector in Malaysia now, Alfred Tan added.

The MNMA is keen to retain Malaysia’s position in the processing of non-ferrous scrap and hopes that SIRIM will make adjustments to the policy before it comes into effect.

“This requirement was set up and approved by our government. Plus, a few client of scrap metal [do] comply to this requirement,” Noridah Binti Nordin, a technical inspector for SIRIM, told Fastmarkets on Monday September 20, without specifying the estimated proportion of industry participants that could import high-purity raw material under the new rule.

One of the MNMA’s key arguments is that the supply of copper and aluminium raw materials could attract more investment by electric vehicle (EV) manufacturers, which could help Malaysia to move up the value chain, Alfred Tan said.

Malaysia’s established presence in the non-ferrous metal recycling chain was a great asset, which has helped the Southeast Asian country from “losing out” in the resource-based competition in the region, he added.

Aluminium scrap from the US is increasingly flowing to India and South Korea, while more US copper scrap is going to Pakistan. And these Asian countries are all keen to boost EV manufacturing.

On September 15, India’s cabinet approved a $3.5 billion incentive scheme to boost production of electric and hydrogen-fueled vehicles. The Pakistan government has an initiative is raise the EV market share to 30% by 2030, while South Korea is already a technology leader in EV battery and vehicle production.

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