January/February 2015
China’s nonferrous
markets have slowed along with that country’s economic growth, casting a pall
over this year’s CMRA forum. Even so, some speakers offered faint glimmers of
hope.
By Adam Minter
In
Chinese, the number 14 translates to “guaranteed death,” making it the worst
among all the unlucky numbers. That’s why you won’t find a 14th floor in
Chinese buildings; they simply don’t exist. That’s also why there was no
reference to that number at last fall’s conference of the China Nonferrous
Metals Industry Association’s Metal Recycling Branch (Beijing), or CMRA, even
though it was the group’s 14th annual forum on the Chinese nonferrous markets.
Instead, the association promoted its gathering under the simpler, but still
ominous, banner of the 2014 CMRA Annual Convention, held Nov. 7-9 in Guangzhou,
China.
It was an understandable adjustment at the tail
end of the unluckiest year nonferrous scrap processors have faced since the
market crash of 2008 and 2009. Conversation in the halls of the Dongfang
Hotel—the conference venue—was subdued, and though trading was afoot in the
hotel’s lobby and bar, the negotiations lacked the fervor of post-recession
China, much less the fever of the mid-2000s. The lackluster markets were part
of the story, but other trends also were to blame. The Chinese market for
nonferrous scrap previously had a familiar structure and consistent dynamics,
but that’s changing as the country’s economic growth rate slows and the
government attempts to restructure the economy for a more sustainable,
slower-growth future.
The numbers tell the story. According to Shang
Fushan, CMRA’s president and vice president of its parent organization, the
China Nonferrous Metals Industry Association, the secondary aluminum, copper,
lead, and zinc sectors combined produced 7.37 million mt in the first three
quarters of 2014, and expectations are for them to produce less than 11 million
mt for the whole year. China is still the world’s top secondary nonferrous
metal producer, but its secondary production is unlikely to grow at the high
rates traders and processors have become accustomed to seeing, Shang said. To
prove this point, he revealed that the sector grew an average of 17.7 percent a
year in the boom years of 2002 to 2007, an average of 21.6 percent a year
during the heavily subsidized, post-crisis years from 2008 to 2010, but only an
average of 3 percent a year since then.
For now, the most noticeable effect of China’s
recent economic slowdown and the corresponding drop in secondary nonferrous
production is weak markets for nonferrous scrap. According to CMRA data, China
imported 4.56 million mt of nonferrous scrap in the first three quarters of
2014, Shang reported. Although he did not provide prior-year numbers for comparison,
he noted that the latest figures are emblematic of “continuously declining
volume.” Indeed, at the 2013 CMRA forum, China Customs official Cao Dayou
reported that imports for that period of 2013 were 8.49 million mt. That would
mean imports in the first nine months of 2014 fell 47 percent, year on year.
Specifically, China’s copper scrap imports in
the first three quarters of 2014 declined 11.4 percent year on year, to 2.64
million mt, while its imports of aluminum scrap slipped 6.87 percent, to 1.6
million mt. Over the past four years, its copper and aluminum scrap imports
have declined 19.6 percent and 21.9 percent, respectively. Shang said he
expects copper scrap imports to fall to 50 percent of China’s total copper
scrap mix and aluminum scrap imports to fall to 40 percent, although he offered
no date for when he expects that to happen.
China’s economic slowdown is not the only
reason for the decline in nonferrous scrap imports, Shang said. “We used to
talk about the availability of metal scrap,” he reminded the audience,
referring in this case to overseas markets. “Now we can see there is a rising
level of scrap, and China will be a major source of scrap.” Although he did not
provide any data on the volume of China’s domestic scrap supplies, other
speakers offered hints in their speeches. Wang Jinglian, general manager of the
Shandong Jingsheng Group (Linyi, China), which owns and operates recycling
parks, copper mills, and recyclables markets in Linyi, a north-central
logistics hub, said that city generates 3 million mt of nonferrous scrap
annually. Its recycling sector currently employs about 100,000 workers and
encompasses more than 14,600 recycling businesses.
Fatigued Markets,
Eroding Advantages
For
China, the growth of its domestic scrap supply is good news, but the news in
most other CMRA speeches was gloomy. Private investment in China’s nonferrous
recycling industry is in decline, Shang said, noting that investment in copper
recycling enterprises declined 31 percent in 2014, in part due to the
significant overcapacity built up in the sector since the economic crisis. In
contrast, investment in lead recycling operations increased 9.6 percent, driven
largely by government support for investment in clean technologies to help meet
the growing challenge of recycling China’s automobile batteries. In a related
effort, the government is shutting down small lead workshops, and large
enterprises are taking their place. According to Shang, the top 10 lead
recyclers now control 60 percent of the market, and they do so in an
environmentally sound manner. “The frequency of lead poisoning incidents has
decreased as the industry has transitioned from labor- to technology-intensive
work,” he said.
Tempering whatever optimism that cleanup might
inspire, however, are markets that Shang described as “fatigued.” In the
January to September 2014 period, the local Chinese price for No. 1 and No. 2
copper scrap declined 9.4 percent and 9.6 percent, respectively, from that
period in 2013, while the copper cathode price declined 9 percent and Zorba
slid 6.7 percent.
Operating
conditions and expenses have been even worse. Labor and power costs, for
instance, continue to rise, “bringing great losses to the industry,” Shang
said. As an example, he pointed to the cost of natural gas for industrial use,
which—depending on the region in China—rose 15 to 25 percent in the first three
quarters of 2014. In the same period, financing costs for scrap processors rose
14.6 percent. “Since last year,” he said, “a capital shortage has gotten some
scrap processors into trouble.” The net result, he concluded, is that “China’s
advantages are eroding.”
The solution to the Chinese secondary
nonferrous industry’s many problems, Shang and other speakers suggested, is
investment in technology. To an extent, the bustling trade show at the CMRA
conference indicated that Chinese operators are starting to make those
investments. Unlike past years, when most technology vendors were foreign
visitors, this year primarily Chinese companies were selling shredders,
granulators, eddy-current nonferrous separators, and other downstream
separation technologies. Nonetheless, few of these devices—if any—were Chinese
in origin, a point Shang noted explicitly in his speech. Even more significant
was his acknowledgement that China not only needs to develop processing
technologies, it also must create products—including alloys—from scrap.
“Indigenous innovations, yes we have some,” he said, “but if you look at the
overall picture, the gap is quite big compared to our foreign counterparts.”
Toward a Successful
E-Recycling Program
Shang
was perhaps too hard on China’s capacity for innovation. One area in which
China is trying to provide industry leadership is the development of a
comprehensive national system for recycling electronic scrap. An idea first
proposed in the mid-2000s, China’s electronics recycling program has been
functioning since 2012. The program has had its bumps along the way, which was
inevitable for an effort intended to serve more than a billion people and
countless devices, speakers noted. Tang Aijun, deputy secretary general of the
China Resource Recycling Association (Beijing), showed that the program is
expanding quickly, albeit from modest roots.
The heart of China’s scheme is an advanced recovery
fee of 7 to 13 yuan (about US$1.14 to $2.11) it charges on each newly
manufactured or imported cathode-ray tube, computer (laptop or desktop),
washing machine, refrigerator, or air conditioner. The government pools the
fees into a national fund, from which it distributes subsidies to licensed
recyclers based on the volume of end-of-life devices they handle. In 2013, Tang
said, the fund collected approximately 3 billion yuan (roughly US$490 million)
from manufacturers, up from about 1.8 billion yuan (approximately $293 million)
in 2012, and it distributed 3.305 billion yuan (about $537 million) in
subsidies to recyclers, up from 629 million yuan ($102 million) in 2012.
Volumes collected have grown in the past two years, from 12.45 million devices
in 2012 to 42.58 million in 2013. Of the devices collected in 2012, almost 91
percent were CRTs, with computers a distant second at 4 percent. Tang did not
provide data for 2013.
The program has approximately 106 licensed
enterprises in 29 provinces. (Three provinces still don’t have programs that
conform to the national requirements.) Of these licensed enterprises, 45 are in
“urban mining” parks that also house concentrated, large-scale recycling
facilities for automobiles, appliances, wire, and other traditional scrap
commodities. Notably, they primarily focus on domestic recycling. Shang pointed
out that 13 of the urban mining parks are located in west China, where
urbanization and economic development efforts are the most intense.
For recyclers of appliances, the system is far
from perfect, according to Wang Hongxia, general manager of GREE (Zhuhai,
China), which claims to be the world’s largest air-conditioner manufacturer. As
such, the company must pay a fee into China’s fund for every device it
manufactures. The company manufactured 6.4 million appliances from July 2012 to
September 2014, Wang said, and it paid 45 million yuan (about US$7.3 million)
in fees—roughly 5.7 percent of the fund’s total.
In addition to manufacturing appliances, GREE
recycles them at four processing plants, each with the capacity to dismantle
1.2 million devices annually. GREE’s environmentally sound, government-licensed
plants have difficulty competing against small, household recyclers, Wang
noted. The problem, he said, is that even though they can’t get the recycling
subsidy, small workshops can make more money than GREE can from a retired air
conditioner due to their willingness to repair and reuse parts or even whole
units, the lighter regulatory burden they face, and their lack of
capital-intensive investment in their businesses. Although the government
intended the subsidy per air conditioner, which is currently 35 yuan, to level
the playing field for licensed recyclers, “the value of an air conditioner” to
the small workshops “is higher than the subsidy, so it’s hard to recover them,”
Wang said. His solution: “Raise the subsidy to lay the groundwork for a reverse
logistics system.” Even then, he sees problems with competition from
entrepreneurs who would reuse rather than recycle old appliances. To counter
that situation, he recommends “abolishing secondhand appliance markets.”
Jiang Zhengkang of GEM High-Tech (Shenzhen,
China), one of China’s largest e-scrap and battery recyclers, was more sanguine
about China’s electronics recycling program, claiming it has achieved
“international standards.” He sees room for improvement, however, particularly
in the promotion and implementation of universal guidelines for dismantling and
processing appliances. Currently, the system gives individual recyclers leeway
to determine how to dismantle and recycle the products as long as they meet
environmental and safety guidelines. He also suggested that regulators should
expand the number of gadgets the program covers from five to 14, including mobile
phones.
A Rare Beacon of Hope
Unlike
past CMRA forums, there were few surprises on the regulatory front at the 2014
conference, nor was there much in the way of data on customs inspections of
scrap imports. Nonetheless, Chen Zejun of the Guangzhou Merchandise Valuation
and Information Office at the Guangzhou Administration of Customs (Guangzhou,
China) offered exporters and importers a rare beacon of hope in a regulatory
environment that appears only to grow stricter by the year. Chen, who said she
has worked on nonferrous scrap issues for a decade, maintained that the
industry had improved in those 10 years, but its development won’t be “stable”
until the industry is “totally standardized.” Toward that goal, she said, her
agency had just spent the past two months working on an enforcement action to
ensure imported loads of scrap have correct price declarations. She did not
reveal the results but reminded attendees that importers and exporters alike
share the legal burden of a correct declaration and will pay the
price—literally—if they fail to provide one.
It takes customs officials at least two hours
to completely unload and inspect a container shipment of scrap, Chen noted.
Chinese Customs would like to accelerate that process, and it’s looking at
various means of doing so, including X-ray machines, she said. There are other
bottlenecks as well, most notably China’s slow-moving customs declaration
system. Currently several agencies must review declarations before a shipment
can be cleared. During busy times, that process can take as long as two weeks.
For those negatively affected by the wait, Chen had some good news: Under a new
system, a single declaration will set off simultaneous container and paperwork
inspections, expediting the clearance process. The program is still in pilot
form, but Chen said she hopes Customs will deploy it widely in the future.
This customer-centric approach to scrap
shipments was perhaps the most noteworthy news at this year’s CMRA forum. Chen
also reminded importers that they have the right to sue over declarations,
while exporters have the right to request reviews of adverse decisions. Of
course, most processors and traders would never dream of challenging Chinese
Customs. But the fact that the option was even mentioned at the 2014 forum
offers hope that when the 15th annual CMRA conference convenes in November,
there might be a bit more optimism in the air.
Adam Minter is a
freelance writer based in Kuala Lumpur, Malaysia, and author of Junkyard Planet.