January/February 2004
Recyclers from around the globe gathered in Guangzhou in November to network, share their views and concerns, and—most of all—learn about the future direction of China’s scrap industry.
By Adam Minter
Though the first shipments of U.S. scrap metal to China reportedly took place in the mid-1980s, it wasn’t until November 2003 that the American and Chinese scrap industries came together in a formal setting to discuss their common interests and issues. The China International Metal Recycling Forum, held Nov. 12-14 in Guangzhou, attracted 200 leading figures in Chinese recycling, including high-ranking government officials, as well as 100 international delegates, mostly from North America. The latter group included ReMA Chair-Elect Joel Denbo of Tennessee Valley Recycling L.L.C. (Decatur, Ala.)—who spoke at the conference—and Scott Horne, ISRI’s counsel/managing director of government relations. Their trip to Guangzhou marked the first official ReMA visit to China.
At the conference, speakers from China, North America, and Europe described the scrap markets in different parts of the world, reviewed the status of specific scrap commodities, discussed international trade issues, and looked at environmental regulations, among other topics.
Not surprisingly, most of the presentations covered China, with the most important theme being the country’s aggressive development of its domestic scrap recycling industry. Currently, an estimated 5 million mt of domestic Chinese ferrous scrap and 200,000 mt of domestic nonferrous scrap are “not recovered for utilization” annually, said Li Jing, assistant inspector at the Environment and Resources Application Department of the National Development and Reform Commission. Such tonnages—if recovered—would significantly affect world scrap metal prices, which are now so deeply connected to Chinese market demand.
The Chinese government is reportedly tailoring the country’s economy to recover scrap at a much higher efficiency, with the goal of being even more efficient than developed countries, according to other Chinese speakers. In particular, recycling systems for electronics, automobiles, and appliances are being developed, in part to reduce the need for imports (depending on the material) by the end of the decade.
The country is also moving toward a more regulated and concentrated scrap industry, which ties into its desire to integrate recycling into its economy at a level beyond what is found in North America and Europe, other Chinese officials said.
Beyond the formal speeches, much important work and progress also took place outside the conference hall. Importers and exporters, for instance, took advantage of the rare opportunity to engage in frank discussions with Chinese customs and environmental officials. Similarly, Chinese officials sought the opinions of leading industry players on topics ranging from scrap specifications to shipping rates.
For these and other reasons, the 2003 Guangzhou event will be viewed in coming years as an important benchmark for international cooperation and friendship between the Chinese, North American, and European recycling industries.
Here, we offer just a sampling of the information presented at this event.
Ferrous Restraints in the Future?
In 2002, China—the world’s largest steelmaker for the past seven years—produced 182 million mt of steel and 103 million mt of pig iron, and it was tracking to significantly exceed those totals by the end of 2003, said Wu Jianchang, vice chairman of the China Iron & Steel Association.
China’s vibrant construction industry is driving much of its steel growth, though the expanding domestic automotive market and other consumer industries are boosting demand as well. Thus, sector-specific recessions shouldn’t affect the growth of China’s steel industry.
On the scrap side, China imported 7.85 million mt of steel scrap in 2002, Wu said, adding that its 2003 scrap imports could end up at 8.5 million mt.
The relative dearth of electric-arc furnace (EAF) capacity in China, however, could limit its ferrous scrap imports in the future, Wu said. Notably, China’s EAF production declined from 1990 to 2002 as a proportion of its total steel production to 16.7 percent. “At present,” Wu noted, “the main restraints on the fast development of China’s electric steel are the scarcities of both steel scrap and electricity.” High ferrous scrap prices have also hindered the country’s EAF development, as has the lack of a large domestic scrap base, he said, with estimates projecting China’s domestic ferrous scrap supply to be 35 million to 40 million mt by 2005. Combined with higher domestic industrial electricity prices (which are a reported 10 percent higher than in developed countries), China faces serious obstacles in increasing its steel scrap usage.
Wu offered suggestions on how China could improve its use of scrap steel, noting that “it is suggested that the state strengthen its overall guidance in importing waste steel.” [In China, the term “waste” is still used to encompass scrap.] This could be accomplished in several ways, including “united purchases” of material by multiple importers. In addition, he strongly suggested that China “strengthen inspection on imported scrap steel” to prevent environmentally undesirable materials from entering the country.
Boosting Scrap Recovery. Chinese steelmakers consumed 38 million mt of ferrous scrap in 2002, with the three main sources being prompt scrap (20 to 25 percent), domestic obsolete scrap (55 to 60 percent), and imported scrap (15 to 20 percent), reported Wang Xiaoming, vice president of Minmetals Trading Co. Ltd.
Overall, he said, “it is certain that the degree of scrap self-supply is increasing year on year, even though scrap imports are increasing, too.” To increase domestic scrap recovery, several Chinese recycling companies are investing in work sites and equipment to handle industrial scrap collection and processing, Wang said.
Certainly, the pool of ferrous scrap in China is poised to grow. In six to seven years, for instance, many private automobiles in China will reach their peak retirement age, said Wang Zhenwu, executive vice chairman of the China Association of Metal Scrap Utilization. Before that happens, he strongly suggested that China increase its imports of Japanese scrap cars to help build a knowledge-base and infrastructure for the far more significant domestic challenge.
Similarly, other speakers noted that China’s appliances—particularly white goods—are on the verge of a mass life-cycle expiration. “If the annual expiration and discard rate is 2 percent, about 15 million such products should expire and be discarded,” noted Zhang Youliang, deputy chief engineer at the Research Institute of Household Electrical Appliances.
The State Development Planning Committee is drafting a regulation, in fact, addressing “how to build up China’s collecting and recycling system dealing with discarded electric appliances and products,” Zhang said. The policy will almost certainly contain a producer-responsibility system, requiring manufacturers to assume a major role in the recovery and/or disposal of their products. Though there’s no firm date when this regulation will be issued, Zhang noted that there will be a two-year transition period after the implementation announcement.
Already, the infrastructure for appliance dismantling and recovery exists, mostly in the current appliance, motor, wire, and cable disassembling industries, which employ 30,000 to 40,000 workers, reported Wang Jiwei, secretary general of the China Nonferrous Metal Recycling Association.
Feeding China’s Nonferrous Appetite
China is now the top nonferrous metal-producing country in the world, with 2002 copper output at 1.63 million mt, aluminum at 4.51 million mt, lead at 1.32 million mt, and zinc at 2.15 million mt, noted Kang Yi, chairman of the China Nonferrous Metals Industry Association. Overall, though, China is becoming less self-sufficient in its use of domestic nonferrous ores, according to a study by the Science Institute of China. For example, from 1993 to 2002, its self-sufficiency in aluminum declined from 73 to 62 percent, in copper from 47 to 35 percent, in lead from 82 to 44 percent, and in zinc from 90 to 71 percent. Given that China lacks enough domestic ore and scrap resources to meet its nonferrous needs, it must increasingly rely on imports of these metals.
A Magnesium Challenge for Aluminum. In China’s secondary—or “regenerated”—aluminum industry (which produces 1.3 million to 1.5 million mt annually), smelters are plagued by quality issues largely due to old technologies, relatively small capacity, and erratic supply chains, noted Du Yongli, president of Baoding Longda Aluminium Co. Ltd. Also, because the industry is largely populated by poorly capitalized small-to-medium-sized players, the industry tends to have poor measuring and testing systems, making its products unsuitable for sensitive products. “Unlike regenerated aluminum products in foreign countries, where 80 percent of regenerated aluminum products are absorbed by the auto industry, the main markets for regenerated aluminum products in China are motorcycle parts and the civil aluminum products casting industry,” Du said.
The rapid development of China’s auto industry has given momentum to large, technologically advanced secondary aluminum smelters, and over the past two years there has been a general polarization between large, quality operators, and smaller ones, Du noted. Ironically, the demand for quality aluminum castings may be challenged by the auto industry’s increasing use of magnesium pressure castings. “Regenerated aluminum and magnesium alloys have the same marketing fields in pressure casting, thus market conflict is unavoidable,” he explained.
The demand for cast aluminum materials for the auto industry is conservatively estimated at 1 million mt a year against current Chinese capacity of less than 300,000 mt. Presumably, the gap will be filled, with imports continuing to play an important role in the industry’s development.
Self-Sufficiency in Copper? The market potential for copper in China is clear. According to Zhang Xizhong, director of the Beijing China Non-Ferrous Metal & Regenerated Metal Research Institute, China’s annual growth rate of refined copper consumption was 64 percent from 1995 to 2000 (compared with 17 percent in the United States). What’s more, “with only a 1-kg increase in per capita consumption, the increase in copper consumption of the whole country will be 1.3 million mt,” Zhang noted. “So we can say that China’s copper-consuming market has enormous potential.”
Like its aluminum smelting industry, though, China’s secondary copper industry is poorly organized and relatively low-tech. “Traditional one-stage, two-stage, and three-stage processes are still being used in electrolytic copper production, resulting in poor comprehensive utilization of alloy elements, high energy consumption, and high processing costs,” Zhang explained. The result is a poor-quality secondary product, marred by impurities.
To improve the quality of these secondary copper products, the Chinese government is encouraging the use of better copper scrap “pretreatment” technologies, including sorting equipment with high-level mechanization, cable paint removal systems, multifunctional wire and cable stripping technologies, cleaning systems, and more, Zhang said. Such developments will likely increase China’s demand for low-grade foreign copper scrap imports.
Nevertheless, China is expected to achieve a degree of domestic self-sufficiency in copper scrap by the end of the decade. According to Zhang, China’s domestic copper scrap supply was 560,000 mt in 2002 and will grow to about 1.7 million to 2 million mt in 2013, at which point imports will have been declining for several years.
Zhang concluded his talk with a proposal that will surely roil overseas scrap operators: “Another shortcut for China’s regenerated copper industry is ... to develop overseas resources, build plants in resource-producing countries or a third country, utilize foreign waste copper resources, dismantle, process, and deep-process waste copper where waste copper resources are produced.”
Though Zhang offered no details beyond this vague proposal, his position suggests that it could be taken seriously at higher levels of the Chinese government.
Improving Precious-Metal Recovery. China’s precious metal recovery industry remains largely primitive and often dangerous, said Liu Daorong of the Precious-Metal Regenerated Resource Utilization Research Institute of the Tianjin Geological Research Institute. As he noted, “Dismantling shops usually use sulfuric acid to corrode away other compositions, leaving behind precious metals, while large amounts of waste acid and harmful materials are discharged endlessly into rivers and permeate soils, causing serious environmental pollution.”
These problems are largely tied to electronic scrap that’s regularly smuggled into China. Nevertheless, he was optimistic that technology and facilities would soon allow electronic scrap to be handled in a responsible manner. In fact, China’s domestic market will demand it: “Starting in 2003,” Liu reported, “at least 5 million television sets, 4 million refrigerators, and 6 million washing machines will be discarded each year.” Exact figures on PCs and mobile phones aren’t available, but they promise to be equally significant. In the meantime, Chinese officials are actively partnering with foreign companies to develop the appropriate facilities to handle the rush.
A New Regulatory Environment
At the conference, Chinese officials emphasized the country’s commitment to developing a sustainable economy built on environmental standards that meet or exceed international rules. Though media coverage occasionally suggests that China’s recycling industry flaunts such standards, several speakers pointed out that China is, in fact, developing its environmental standards faster than developed countries did. As Francis Veys, director general of the Bureau of International Recycling (Brussels, Belgium), pointed out, “What took 50 years to happen in the developed countries ... could develop in China within the next 10 years.”
Other Chinese officials discussed how the country plans to achieve its environmental goals, at least in the next five years, and how it will address problems related to imported “waste” materials (again, a term that in China includes scrap).
Liu Xiuru, counselor with the Department of Pollution Control at the State Environmental Protection Administration, stated that “waste materials exported from some foreign enterprises contain contraband goods” that don’t conform to China’s import laws. After explaining the penalties for smuggling, she reviewed steps the government will soon take to tighten compliance. First, imported waste materials will be placed in four classes, which Liu described as “automatically imported class, limited imported class, forbidden imported class, and other special class.” Descriptions of the classes should be published soon, with the policy coming into effect in the next year. When that occurs, China’s “main energy will be concentrated on checking and preventing forbidden-class waste materials from entering China,” she said.
Liu also announced that, in 2004, China’s Quality Inspection Bureau—known as CIQ—will begin registering foreign enterprises that export so-called waste materials to China, including scrap shippers. “Foreign waste material exporting enterprises should submit to [CIQ] applications for exporting waste materials to China,” she said. “Only after examination and approval may such foreign enterprises register as qualified waste material exporting foreign enterprises.” Registered importers who violate China’s import regulations will be subject to publicly posted warnings. Repeated violators will have their registration canceled, Liu said.
One important environmental and regulatory trend in China is the move toward consolidated scrap processing parks where “disassembling and recycling enterprises are located in the same area, in which they have standard management, planning, layouts, and services provided by the local government,” said Wang Jiwei of the China Nonferrous Metal Recycling Association. “The enterprises are under constant and close supervision from customs, commodity inspection, environmental protection, and other concerned departments.” Such parks are officially supported by China’s EPA and will be the future of the country’s scrap recycling industry, he asserted.
Wang also described the new index pricing system at Chinese customs, noting that “we have found that some enterprises don’t report correct values on imported materials.” As a result, customs worked with the China Nonferrous Metal Recycling Association to develop a system—to be deployed in early 2004—that will give customs officials an accurate basis on which to set duties on imported scrap. Such a system is designed to end some of the “games” that exporters have used to flaunt China’s duty system, Wang said.
Finally, Wang reiterated his support for a grading system for scrap recycling enterprises based on a number of factors, including legal compliance and size. The system, first proposed in 2001, is still being formulated, but it is quite likely that some form of the system will be adopted in the next few years.
A Future of Change
The overall shape and condition of the Chinese recycling industry is changing rapidly for both domestic and overseas operators. New regulations could create a more difficult export environment for certain North American and European scrap shippers, particularly those involved in contraband materials. However, the upcoming Chinese appliance and electronic scrap recycling industries offer great opportunity for exporters who can establish relationships with the important players early and in a manner that conforms to Chinese laws.
As the conference ended, two Chinese officials with leading roles in recycling sat in the cafe next to the conference hall, sharing dim sum with two large U.S.-based scrap exporters. Between them sat a young translator, notebook on the table, her eyes rapidly moving between the two parties. The conversation was strictly off-the-record, but the fact that it was happening at all was a positive development for the recycling industries of China, North America, and Europe. In the coming years, such conversations will become even more commonplace, the hallmarks of an international recycling industry with an increasingly Asian focus. •
Adam Minter is a journalist based in Shanghai, where he writes about business and culture for Chinese and U.S. publications.
Recyclers from around the globe gathered in Guangzhou in November to network, share their views and concerns, and—most of all—learn about the future direction of China’s scrap industry.