EXCLUSIVE: China’s non-ferrous scrap imports ‘will halt completely in early July,’ sources say

Imports of non-ferrous scrap into China will be halted suddenly for the first two weeks of July, if not longer, due to the administrative procedures required for the government to issue licenses and scrap import quotas on July 1, multiple sources close to the matter have told Fastmarkets.

Starting in July, the import of eight types of scrap metal - including No1 and No2 copper scrap, several types of aluminium scrap and steel scrap - will be restricted by quantity and on a quota basis.

The Recycling Metal Branch of industry lobby group China Nonferrous Metals Industry Association (CMRA) said last week that scrap metal importers in China can start to apply for import quotas from mid-May. But it was still very unlikely that any approvals would be granted before the beginning of July.

A source close to the Chinese government told Fastmarkets on Thursday April 25 that although the provincial divisions of the Ministry of Ecology & Environment would start to accept quota applications from corporate entities, the actual examination of importers’ eligibility - including their scrap-processing facilities and emissions standards - would not start until early in July.

The official body that will issue such approval will be the Department of Solid Waste & Chemicals Management, the source said, adding that the process will take from eight days to two weeks.

“The first batch of licenses and quotas should come out on July 8, because the central government needs 2-3 working days to check the application material and put the information into the system. After that, it needs 3-5 days to print and mail the approved license to the companies,” a second source close to the matter told Fastmarkets.

“In applying for the licenses, companies must first submit applications in mid-May to their provincial governments, and then the licenses will be sent to the central ministry for approval,” the second source added.

The implications of this procedure were that the flow of scrap metal, including the category 6 copper scrap that makes up 85% of China’s total copper scrap inflow, could be jeopardised for the first two weeks of July before any applicant is judged eligible to receive import quotas.

“For many companies, right now they are trying to push their suppliers to make scrap material arrive after July 15,” a third source said.

“Two weeks is a long time, but this is how the Chinese government works,” a fourth source said. “They are working for their convenience, not with concern for the industry. Everyone is rushing for shipments.”

Other sources noted that, in reality, scrap flows into China will be affected for at least 30 days when taking into account that Chinese consumers will cut off their imports no later than June 15. This will allow them to clear material through customs before the July 1 implementation date, and then to resume shipments after July 15.

“It starts as a 30-day window but there is always a boomerang effect,” a fifth source said. “If you’re a smaller shipper, maybe it will stretch out even more, to 45 or 60 days. Either way, this is going to be an opportunity for non-Chinese consumers to take advantage of the situation. I think prices are going to show a dramatic reduction for at least that 30-day period.”

The expected delays will be an eerie reminder for many exporters of the Chinese government’s 30-day suspension of its North America customs inspections division last summer. This froze all non-ferrous scrap shipments from the US to China and caused a massive backlog of material in the market.

“Thinking back to last year and the CCIC suspension, which was about one month or more, it took about 2 months for the backlog to flush out the US market excess,” a sixth source said.

Although several major Chinese refineries and copper fabricators were confident that they would be granted quotas eventually, some of them have postponed purchases and shipments of copper scrap to avoid any awkward situations, in case newly purchased scrap cannot be cleared by the end of June.

“Chinese smelters don’t know what exactly is going to happen, but they expect that licenses will only be given to smelters,” a seventh source said. “No sorting or processing yards will get licenses, we are told, it will only be end-users that are actually doing the smelting. We are aware of a large processing operation that is already trying to form partnerships with smelters so that it can still bring material [into China] under their licenses.”

As a result, price discounts for No2 copper scrap on a cif China basis widened significantly in April, with a few deals reported to Fastmarkets at prices as low as 86% of the London Metal Exchange price, translating to a discount of more than $0.40 per lb. In the latest assessment on March 25, the discount was $0.32-0.38 per lb.

“We still don’t know what the quotas will be. People are hesitant about shipping to China. Generally, spreads have widened in the past few months and there is room for them to widen further,” an eighth source said.

In the first quarter this year, more than 330,000 tonnes of copper scrap were shipped into China, a decline of 40% year on year, according to the latest Chinese customs data.

Aluminium scrap prices, including twitch and zorba, will also be exposed to the effects of the expected import delays, according to market participants.

US prices for non-ferrous auto shred (twitch) material delivered to US smelters have eroded in recent weeks, trading at 55.5-58.0 cents per lb on April 23, down from the year-to-date high of 56.5-58.5 cents per lb in late March.

“I think prices will be further affected,” a ninth source said, adding that prices have not yet been properly adjusted to take account of the situation. “When buyers realize they are competing against themselves and no one else, I think prices will be severely affected, just like last year, when we saw prices plummet. Beijing doesn’t care if scrap imports stop.”

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