Copper: Chinese Copper Scrap Consumers Boost Imports In December Ahead Of New Restrictions
Kitco Commentaries | Opinions, Ideas and Markets Talk
Featuring views and opinions written by market professionals, not staff journalists.
Chinese scrap buyers imported their highest monthly tonnages of the year in December as they strove to front load their raw material purchases for early-2019 from overseas ahead of the imposition of further regulations on the quality of scrap metal imports. The gross weight of copper scrap imports rose from 220Kt in November to 250Kt in December. Scrap purchases by smelters and refiners helped boost December refined copper output by 4.5% year-on-year to 839Kt, the highest monthly total of the year. This is the second highest monthly figure ever, eclipsed only by the 865Kt produced in the final month of 2017. The December number brought total Chinese refined copper production during 2018 to a new annual record of 9.030Mt.
A total ban on imports of category seven scrap – including such items as insulated wire and cable and broken electric motors – is now in force as of January 2019, after these items were subject to restrictions and quotas during 2018. Last year, imports of category seven scrap accounted for 16% of all copper scrap imports, down from 52% in 2017. Imports of category six scrap, which includes high grade scrap suitable for industrial use, either at smelters, refiners or fabricators, jumped to 84% of all inflows last year, up from 48% in 2017. This includes premium scrap grades such as cliff and birch with a 96% copper content, which is a readily accepted and highly valued raw material in Western markets. So the news that this category six scrap is now to be subject to quotas and restrictions from July 2019 is a further blow to the world’s recycling industry, already reeling from the impact of the category seven ban. As industry veteran Michael Lion of Everwell Resources commented, “There is too much scrap in the wrong place and not enough capacity in some places to process it”.
Other market analysts have recently downplayed the impact of the most recently announced legislation, however Roskill’s two recent visits to China have left us in no doubt as to the resolve of the Chinese authorities to implement this new legislation as well as enforcing much tougher and more frequent pollution inspections on smelters and fabricators to cut down harmful emissions. We consider the prospects of a big surge in category six imports in the first half of 2019 unlikely for two reasons. Firstly, scrap imports from the USA are currently subject to a 25% tariff, imposed by China as part of the Sino-US trade war, which led them to slump to almost zero in the fourth quarter of 2018. The USA was hitherto the leading source of all scrap exports to China, accounting for as much as 22% of all exports to China and Hong Kong. Moreover, Chinese customs are also strictly enforcing the ban on transhipments, so scrap cannot be shipped from the USA via a third country to enter China. Secondly, the big drop in global copper prices has already resulted in a drop in global, and Chinese, scrap generation, as lower prices affect the incentive to collect, process and recover the red metal.
To prepare for the enforcement of the new restrictions, the Chinese General Administration of Customs has announced its first list of pre-shipment inspection agencies for solid waste imports. The 21 approved agencies are located in Malaysia, the Philippines, Singapore, the Netherlands, Canada, Kazakhstan, Macao, Thailand, South Korea, Australia, Africa, the UK, the USA, Japan, New Zealand, the UAE, France, Germany, Hong Kong and Vietnam. However, many other countries are not yet covered.
The world recycling industry is responding by investing in new shredding and granulation equipment to dismantle more scrap at source, but this will take time to put in place and build the necessary capacity. The lead time on this scale of investment – perhaps 2-4 years – means that the international recycling industry has no chance of being ready for the start of restrictions in July 2019. Some new facilities are being established in ASEAN, India and Japan, but these are only being announced now.
Chinese consumers, with a legacy of dependence on cheap imported western scrap, are right to be worried about the security of their supply chain. The likelihood is that smelters and refiners will continue to switch more of their purchases to anode, blister and concentrates, while fabricators will look to buy more ingot and cathode. These changes in purchasing patterns will tighten the world market for refined metal and potentially push LME copper prices higher during 2019, especially if China and the USA move towards a resolution of their trade war. A complete ban on the import of category six scrap will come into force by the end of 2020, with imports of only a 1% impurity content being permitted after this date – a target which the recycling industry says is unachievable. As Goh Kian Guan of Chiho Environmental has concluded, “I think all market participants have been taken back by the blanket approach on solid waste imports”.
Roskill’s new report Copper Demand to 2035: Global Industry, Markets & Outlook is due to bepublished in Q1 2019. Click here to download the brochure and sample pages, or to access further information.