FOCUS: Impact of China scrap import curbs exaggerated but sector could move overseas

An exaggerated response to reports that Chinese authorities will curb the import of certain scrap products in certain customs categories from the end of next year saw London Metal Exchange copper prices hit fresh two-year highs on the morning of Wednesday July 26.

Although Metal Bulletin could not find official statements from China’s Ministry of Environmental Protection (MEP) or Chinese customs on their websites, expectations that China will import huge volumes of copper scrap before the ban is in place pushed three-month copper to a peak of $6,400 per tonne.

The contract had closed at $6,225 per tonne on Tuesday.

According to a message disseminated on Chinese social media platform wechat on Tuesday night, the China Nonferrous Industry Association (CNIA) informed its members that China will prohibit the import of scrap materials listed in the seventh category under customs HS code (e.g. scrap copper under 74040000 10) before the start of 2019.

Scrap materials such as scrap cable, scrap wire and scrap motor and other car parts are on the list, meaning imports of metal contained in that material – such as copper and aluminium – will be affected.

But scrap metal that does not require dismantling in the country, such as No.1 and No.2 copper scrap, will still be allowed to enter. Those materials are listed in the sixth category under customs HS code (e.g. scrap copper under 74040000 90).

When contacted by Metal Bulletin on Wednesday, a CNIA official denied that it sent any message or made any formal statement to its members on the issue but he added that an official statement from the MEP and China’s customs is awaited.

Three major non-ferrous companies involved in the Chinese scrap sector told Metal Bulletin they had not received any notice from the CNIA but they added that a ban of this type has been widely expected for a while and is in line with central government thinking.

“This is not news within the scrap market – everyone knows this will definitely happen after Beijing’s meeting in April, which have clear guidance on scrap imports,” one scrap trading source said.

A reform group led by Chinese President Xi Jinping met in April this year to discuss a range of policy changes, including significant reductions in the categories and volume of waste imports.

Local authorities have already implemented import bans in other sectors. On July 18, China submitted a document to the World Trade Organization (WTO) informing it that the country would no longer take in any “foreign garbage” such as slag from steelmaking and many kinds of waste wool, ash, cotton and yarn.

Potential impact volume
China imported around 1.85 million tonnes of copper scrap in the first half of the year, up 18.66% year on year, customs data showed.

Scrap material that comes under category 7 could account for nearly 80% of the total actual weight although the average copper content in those products is relatively low – an estimated 10-50% – compared with those in category 6, one market observer told Metal Bulletin.

Based on the first-half import total, the volume of scrap affected by the ban could be as much as 440,000 tpy, a source at a major scrap trading house told Metal Bulletin.

Tap into new markets
The dismantling industry, which relies on category 7 scrap imports, would be most affected under the new policy. The sector could shift to other countries with less stringent import regulations such as Thailand, Malaysia, Vietnam and Philippines, market participants suggested.

Some of these countries already dismantle scrap before shipping the end-products to China. Malaysia, the Philippines and Thailand were among the ten largest sources of scrap copper in China in the first half of 2017 at 99,636 tonnes, 92,879 tonnes and 84,646 tonnes respectively, customs data showed

“The shape of the market will see big changes in 2018, especially in the second half… scrap shipments are not very stable. Market participants will be very cautious about placing orders in the third or fourth quarters of next year in case some cargoes are delayed to 2019,” one scrap source said.

Still, as long as Chinese demand for copper remains strong and no new major consumers emerge to compete for material, copper scrap will continue to move to the country albeit in a cleaner and more environmentally friendly way, market participants said.

China’s top 10 sources for scrap imports, January-June 2017

Country H1 2017 imports (tonnes) Y-O-Y change (%)
Hong Kong 336,289 7.97
United States 249,074 -6.38
Australia 231,929 5.27
Netherlands 112,733 15.94
Japan 112,097 22.14
Malaysia 99,636 14.65
Philippines 92,879 772.46
Thailand 84,646 189.36
Germany 84,220 18.61
United Kingdom 77,518 -10.39
Total 1,852,153 18.66
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