China’s Minmetals to let US ops ‘fade out’ as tensions rise - sources
Trader Minmetals has decided to wind down its operations in the United States citing increasing uncertainty for Chinese state-backed firms operating in the North American country, Fastmarkets has learned.
Minmetals Inc (LA), a US trader of metal scrap, tungsten and cemented carbide products and auto parts, will “fade out” with priority given to businesses in other regions, according to well-informed sources.
Some personnel and resources will be relocated to the Beijing headquarters by the end of this year, multiple sources with direct knowledge of the matter said.
The metals mining giant first set down a base in the US 30 years ago. The subsidiary, located in a remote area of Los Angeles, has since then become a key exporter of US non-ferrous scrap to Chinese fabricators and smelters in China.
On top of Minmetals’ explicit mission to “guard China’s metal resources security,” scrap trading margins had long been lucrative with China being the top destination of US copper scrap for 16 years.
This has changed as Sino-US trade tension escalated, even before Chinese Premier Xi Jinping revived the Maoist call for the country’s self-reliance this year.
Shrinking scrap book
The year 2018 was a watershed in the global non-ferrous scrap industry. China imposed hefty tariffs on US-origin copper and aluminium scrap, leading to massive scrap cargoes diverted to Southeast Asian countries since then.
After subsequent adjustments, the effective tariff for US copper scrap is now 30% while that for aluminium scrap is as high as 55%, essentially reducing the big pool of Chinese scrap importers to a handful of players with tolling licenses.
Metal scrap flow from the US to China has shrunk significantly in the past two years as a result.
For the first seven months of 2020, $192 million-worth of US-origin copper scrap was shipped into China, according to customs data. That represents only 27.7% of China’s US copper scrap import value for the same period in 2017.
Not only did revenue generated from US scrap shrink for Minmetals LA; the operational environment in the country has also become questionable.
The Chinese state-owned firm is described as “sandwiched” between the backdrop of an accelerating “decoupling” of two economies, according to a company source who asked not to be named due to the sensitivity of the matter.
“Limitations came. Businesses cannot be run smoothly in US anymore. Many Chinese companies are prone to US sanction risks now,” the source added.
Established in 1988, Minmetals LA had a vision to “develop trade relations between the United States and China,” it says on its website.
In fact, not too long ago the company was awarded for its contribution and influence in facilitating Chinese trade ties with California, home to $30 billion of Chinese investment.
At a glamourous gala in spring last year, Minmetals LA was among six Chinese corporates to receive the honor from the counsel general of the People’s Republic of China in LA.
All six US subsidiaries of Chinese companies are big names in the industries deemed vital to national security, including Bank of China, electric vehicle maker BYD and Chinese aircraft maker Aviation Industry Corp of China (AVIC).
In June 2020, AVIC was named by the US defense department as one of the 20 “Communist Chinese military companies operating in US,” alongside mobile telecommunications company Huawei.
BYD, famously backed by Warren Buffet’s Berkshire Hathaway, produces the majority of public electric buses running in LA. Running a factory in LA that employs over 700 locals, the EV maker was still described as posing a threat to US public transportation at a bipartisan bill to Capitol Hill in March 2020.
The bill, later rejected, stated that BYD enjoys an unfair competition edge over its US peers with alleged financial support from the Chinese government.
While there has not been any official allegation against Minmetals LA, the parent company is seemingly taking extra precautions by retreating from the US to avoid any risk to its business, which has an extensive portfolio of assets worth 929.5 billion yuan ($136 billion) across different parts of the world.
Li Liangang, who was general manager at the time Minmetals LA received the award last year, moved on to oversee the company’s Australian assets including Dugald River zinc mine in July.
In the same month, Fastmarkets reported Minmetals’ overseas mining flagship MMG is planning to relocate its Melbourne-based team to Beijing by the end of this year.
“Wherever the company asks us to go, we will be there. I am always waiting for instructions and changes,” one of the relocating staff members said.