Chinese lead smelters reel as waste product clampdown, Glencore allegations restrict feed

China’s crackdown on imports of lead waste products has sent ripples through the smelting industry there, with some companies pondering capacity cuts amid one of the tightest concentrate markets in years.

Chinese customs publicly named Glencore at the end of May as attempting to import 16,000 tonnes of lead waste products labeled as concentrates originating in Germany, detaining two employees from the Swiss miner-trader’s Beijing office.

Glencore, which is China’s largest external supplier of lead and zinc concentrates says that it “refutes” the allegations. Metal Bulletin is not aware of any adverse effect on Glencore’s Chinese lead and zinc concentrate business.

Henan-based lead smelter Jiyuan Jinli Lead Smelting was a counterparty on the 16,000 tonne trade and also had executives detained by authorities, three sources told Metal Bulletin.

“Jinli will lay the blame on Glencore, but they knew what they were buying,” a well-informed Chinese smelting source said.

“There are no major lead mining sites in Germany at all,” another smelter source said, in reference to the shipment label as concentrates. “Jinli has been buying lead slag for a long time. It’s not its first purchase.”

Jiyuan Jinli did not respond to several requests for comment from Metal Bulletin.

The clampdown, part of China’s “Blue Skies” program to tackle pollution in the country, has led to customs agents impounding several cargoes at port, detaining business executives and starting investigations into multiple company trade records.

These investigations have led to a complete shutdown on the business of importing lead slags, ashes, dross and other secondary byproducts from the smelting process, which primary smelters use to supplement their metal concentrate raw material supply feed.

“In the past two weeks customs have been visiting various Chinese smelters to check if they have bought slag. Now nobody is buying it anymore.” a lead trader who dealt directly with smelters importing lead waste from Germany told Metal Bulletin.

The lack of these substitutes could cause lead treatment charges (TCs) to remain lower for longer and some smelters reliant on this material could reduce refined lead output as a result.

“It [slag trade] has been going on for many years. Everyone in the industry did buy some at some point in time. Small lead smelters will have to cut their capacity or even shut down if they are not receiving these slags. Lead concentrates are too expensive,” a concentrates trader said.

Pervasive trade
The illegal importing of secondary lead products originating from European smelters has been commonplace in China for years, sources across the industry told Metal Bulletin on condition of anonymity.

Lead rich slags, which are prohibited to enter China from abroad, had been commonly disguised as legal lead ores and concentrates.

The material, which usually has a similar 50% lead content as concentrates, is popular amongst smelters who buy it on the cheap at higher treatment charges (TCs), sources with knowledge of the trades said.

Before the clampdown, lead slags were traded at TCs of up to $45-50 per tonne, a source at a Chinese smelter said. Lead concentrates by comparison are changing hands at TCs of $15-25 per tonne, according to Metal Bulletin’s latest assessment on May 25.

Other sources said the real profit could be substantially higher than that, but not everyone is willing to bear the risk of using lead slag.

“We have not been allowed to get lead-rich slag into China since around 2010. We still bought some at that time, but we had to stop doing so due to the stringent inspections by Chinese customs in the past few years,” another lead ore trader based in China said.

The trader source estimated the profit from using imported lead dust or slags could be eight to nine times higher than lead concentrates, providing a strong incentive for smelters to bear the risks.

The majority of detained cargoes were heading to Hunan and Henan provinces. The latter is home to one third of China’s lead output last year.

European origins
The material impounded by Chinese customs and being sold by Glencore originates from the Recylex Weser-Metall lead smelter in Nordenham, Germany, and is one cargo of several that have been exported to China in recent years, sources with knowledge of the matter told Metal Bulletin.

“It’s been an industry secret for a while… the movement of this material, which is clearly a residue coming out of the smelter. It basically is lead sulfate as opposed to lead sulfide. It has a different color and smell,” a second trading source with knowledge of the trades said.

In 2017, China imported 41,719 tonnes of lead ores and concentrates from Germany, according to World Bureau of Metal Statistics. That compares to the 47,478 tonnes brought into China in 2016.

Chinese smelter sources have told Metal Bulletin that around a 10th of the material imported from Germany was concentrate, while the rest was smelter secondary byproduct. These figures could not be independently verified at the time of publication.

A total of 789,598 tonnes of lead ores and concentrates have been imported into China from Germany since 1998 according to Chinese customs statistics, averaging out at 39,480 tonnes per year and peaking at 71,266 tonnes in 2014.

Glencore is the largest single shareholder of Recylex, with 31% ownership of the Franco-German lead producer. Christopher Eskdale, Glencore’s head of zinc and lead asset management, is one of five members on the Recylex board.

Euronext-traded Recyclex deferred Metal Bulletin’s questions concerning the origins of the impounded material and the commercial relationship between the Recylex and Glencore to Glencore. Glencore declined to comment.

But the supply of these smelter byproducts to China is not restricted to Germany. Lead and zinc smelters in other countries, such as Belgium, produced lead sulfates with China as the favored end-market.

Prior to the construction of the Port Pirie smelter in Australia, Belgian zinc producer Nyrstar also shipped similar material from its Budel smelter to China to customers there, three sources with knowledge of the matter said.

“Nyrstar used to do it in the past but Trafigura stopped it and for good reason. Lead sulfates from Budel went to China classified as a product but it was also a residue,” a European industry source said.

“Officially it was not allowed because it was a secondary material,” the source said.

Nyrstar had not responded to requests for comment at the time of publication.

And Europe is not the sole region to ship lead sulfates to China; Huangpu customs returned 205 tonnes of lead rich slag to Malaysia on May 10.

The eight containers, earlier guised as lead concentrates by a Hubei-based company, were detained last December, according to a notification from the customs agency.

Desperate market
The very public clampdown on imports of these products has put importers on edge. One short-term impact has been that buyers are more likely to pass on cargoes they feel could get them in trouble with the authorities.

“At the moment the customs are super, super hot and any hint that material is outside specs, ‘boof’ they are on it. Everything is being scrutinized,” a second concentrates trader said.

But the cutting off of such imports poses a challenge for the Chinese lead smelting industry, sources said; China produces the majority of its refined lead from primary concentrates, lagging behind a global trend to recycle lead-acid batteries as a raw material.

Over 85% of the increase in China’s refined lead production since 2010 has been from secondary smelting businesses, according to consultants CHR Metals, but there remains a reliance on mined concentrates as a feed for refined lead output.

This, in recent years, has been in short supply. Metal Bulletin assessed TCs for low-silver lead concentrates at $15-25 per tonne at the end of May. 

TCs are discounts on the exchange metal price paid to smelters to compensate for the processing of concentrates into metal. In May 2016 they were at $150-160 per tonne – the drop reflects a global supply crunch that has left lead smelters scrambling for alternatives to concentrates.

Chinese lead smelters also lost a major supply partner in North Korea last year; the ‘Hermit Kingdom’ accounted for a 10th of China’s lead concentrate imports in the first five months of 2017 before UN sanctions cut off the supply chain.

“These slag imports also have a lot to do with the extreme tightness of raw materials for lead smelting in the domestic market in the past year,” a fourth concentrates trader said.

[This article was updated to clarify that there are five members on the Recyclex board, not four as previously stated.]