January/February
2016
China’s
growing domestic scrap collections add to the bad news for nonferrous exporters
already feeling the pain of its slower economy, falling commodity prices, and
metals overproduction.
By Adam
Minter
For much of the last two decades, a single dynamic defined the
global scrap industry: China takes in the rest of the world’s exported scrap.
One visible manifestation of that dynamic often could be found at the annual
convention organized by China’s Nonferrous Metal Industry Association’s Metal
Recycling Branch (Beijing), better known as CMRA. Foreign exporters of scrap
would arrive at the show knowing they’d have their pick of importer customers.
Competition was so fierce that, in some cases, buyers would roam the convention
hotel asking foreigners if they had scrap to sell.
The 2015 edition of the CMRA
meeting, held Nov. 7–9 at the Shangri-La Hotel in Ningbo, China, and attended
by approximately 500 delegates, offered strong evidence that the dynamic has
altered. European and U.S. scrap traders—who, in previous years, could turn
down less attractive offers for their scrap knowing that more offers were on
the other side of the hotel lobby—found they were no longer popular. By and
large, Chinese traders were no longer interested in buying.
In the convention hall, speakers
focused on the macroeconomic trends transforming the global scrap trade. Many
cited the year-old global commodities bust as the overarching reason for the
transformation. But others also cited deeper reasons, including massive Chinese
smelting overcapacity, shifts in the structure of the Chinese economy itself,
and—most critically—increasing volumes of domestically generated Chinese scrap.
For exporters and importers alike, the only certainty speakers conveyed was
that the nonferrous scrap metal industry will not soon—if ever—return to the
boom years of the 2000s and early 2010s.
Riding the Market Roller Coaster
The gloom and doom surrounding the market gave rise to an unusual
degree of candor in speeches at the 2015 convention. For example, Wang Jiwei,
CMRA’s vice president and secretary general, offered unvarnished assessments of
what ails the Chinese side of the industry. “Our innovation capacity is weak,”
he conceded early in his remarks. “And the quality of personnel is quite low
because they come from the manual dismantling side of the business.” He
summarized the unsettled year in Chinese nonferrous scrap as “four increases,
four decreases.” That is, “increased yields, decreased prices; increased
domestic recycling, decreased imports; increased environmental standards,
decreased energy consumption; increased technology level, decreased profits.”
Several factors contribute to
decreased prices and profits, including sliding demand as China’s
infrastructure-building binge comes to an end. But Wang and other speakers were
unambiguous in blaming massive overcapacity across the secondary nonferrous
industry for its problems. By his accounting, “some enterprises” are currently operating
at “less than 50-percent” capacity, and yet the industry continues to expand
and grow. Wang said he expects secondary nonferrous output to grow 4.9 percent,
year on year, to 12.1 million mt in 2015. Specifically, he projects copper
production will hit 3 million mt (up 1.7 percent, year on year), aluminum will
reach 6 million mt (up 6.2 percent), lead will reach 1.7 million mt (up 6.3
percent), and zinc will reach 1.4 million mt (up 5.3 percent).
CMRA speakers also gave
considerable attention to the growth of China’s domestic scrap supplies.
According to Wang, domestic copper scrap supplies grew at an average annual
rate of 12.7 percent from 2011 to 2014, while imports fell by an average annual
rate of 6.2 percent; domestic aluminum scrap supplies grew 17.8 percent and
imports fell 5 percent. In 2015, China imported 4.32 million mt of
copper-bearing scrap and zinc-aluminum alloy scrap, though Wang didn’t break
out the respective numbers. He predicted domestic copper scrap collections
would reach 1.9 million mt by the end of 2015, and aluminum collections would
reach 4.2 million mt, making China “60-percent self-sufficient in copper and
aluminum scrap.” It’s not all good news for China, however. The domestic scrap
flow is “difficult to ensure,” Wang said, which causes uncertainty for China’s
recyclers.
Wang suggested that secondary
metals are starting to replace primary in metal production on a large scale. He
specifically cited scrap lead, which China used for 29.3 percent of all lead
production in 2011. In 2014, it was 37.9 percent of production, and Wang
claimed that it would hit 50 percent during the 13th five-year plan, China’s
top-level economic planning document, which runs to 2020. Environmental—and Regulatory--Impacts
This increased use of secondary lead is a positive development for
lead smelters, but it’s not without environmental costs. The secondary
lead-smelting industry “is one of the leading sources of heavy-metal
environmental accidents in China,” explained Li Yanping of the China Research
Academy of Environmental Sciences in a sobering speech. Her data show that only
30 percent of China’s secondary lead smelters meet the qualifications the
Chinese government requires of the sector, including technology, scale, and
environmental standards. Worse yet, only 20 percent meet the Ministry of
Environmental Protection’s air pollution emission standards. Copper performs
only marginally better, with only 20 to 30 percent of smelters meeting the
emission standards. “We are trying to fix China’s environmental situation with
policy,” she observed. “But it seems that policy doesn’t work.”
That’s a harsh indictment of a
decade’s worth of Chinese regulatory efforts. Since the mid-2000s, Chinese
officials have complained that small recycling operations are responsible for
much of the country’s recycling-related pollution problems, and they have tried
to phase them out. But thanks to declining prices and the need to maintain
margins, the problem of small, polluting facilities appears to be intensifying.
That’s an unexpected development. In recent years, various ministries have
collaborated to raise entry barriers, including capital requirements and
emission standards, for recycling businesses. Ma Rong of the National
Development and Reform Commission, China’s top economic planning agency,
indicated that those efforts will continue. “So … we have to deal with small
companies that have problems,” she said. “This wasn’t according to our plans.”
The environmental picture isn’t
completely bleak, however. Wang pointed out that the energy consumed in the
production of secondary copper, lead, and aluminum has undergone a “steep
decline” since 2010. In China, a single metric ton of “standard coal” now
produces about 250 kg of copper, 130 kg of lead, or 80 kg of aluminum. Between
2010 and 2015, Wang noted, the production of secondary metals in place of
primary is estimated to have saved 110 million mt of standard coal and 8
billion cubic meters of water. It also reduced solid waste emissions by 7
billion mt (mostly in the form of tailings) and sulfur dioxide emissions by 5.9
million mt.
Government Investment in Recycling
The Chinese government continues its efforts to consolidate the
industry into large groups operating in designated recycling parks
that—theoretically—allow more focused regulatory oversight. Wang announced that
China has so far built 49 national “urban mining” demonstration bases oriented
toward domestic recycling, 21 regional recycling parks oriented toward imports,
99 resource recycling system pilots, and 12 “large industrial solid waste
recycling demonstration bases.” Nonetheless, Ma cautioned against becoming too
excited by the parks. “Some of the urban mining pilots are good, some are not,”
she said with a shrug. “And some aren’t as good as the enterprises outside of
the pilot projects.”
Meanwhile, the government is
continuing its long-term trend of building up large-scale national recycling
companies. Ling Jiang of the Ministry of Environmental Protection offered data
showing that the number of companies licensed to import scrap of any kind
declined from 4,117 in 2005 to 2,317 in 2014. Yet overall scrap imports
increased by 10 million mt during that same period, offering one measure of
success in the government’s effort to consolidate its scrap import business.
Another measure is raw scale. Wang proudly announced that China’s largest
copper, aluminum, and lead processors have 750,000, 380,000, and 850,000 mt of
annual capacity, respectively. Some companies are now big enough—and ambitious
enough—to venture abroad. Of these, he cited Ye Chiu Metal (Taicang, China),
which recently acquired operations in the United States, and New Chunxing
Resource Recycling Group (Suzhou, China), which has operations in Thailand and
Australia.
In fact, Wang sees some of the Chinese
scrap industry’s best growth opportunities outside of China. He pointed to
President Xi Jinping’s signature “One Belt, One Road” initiative, whereby the
Chinese government will partner with Central Asian, Southeast Asian, and
European governments to build infrastructure and other trade links between
China and the rest of Eurasia. The multibillion-dollar program already is
helping build everything from port facilities in Pakistan to railway lines
across Central Asia. The hope is that those railway lines, in particular, will
become very important to the scrap industry. According to Wang, new fast
railway links between Europe and China are cutting shipping time to 12 days
compared with the 24 to 31 days necessary for ocean shipping. Faster shipping
times might reinvigorate trade between Chinese and European scrap traders.
More important, Wang sees the new
interconnectedness of Eurasia giving China’s nonferrous scrap industry the
opportunity to assume a role in the “global distribution of resources, industries,
and markets.” No longer will China be a mere scrap importer. Soon, he feels,
China’s nonferrous industry will engage in “technical cooperation, capital
cooperation, and product processing” with foreign scrap processors, oftentimes
located in multinational, cross-border versions of China’s urban mining and
resource recycling parks. NDRC’s Ma Rong shared Wang’s vision, arguing that
China’s rising labor costs are an opportunity for globalizing China’s scrap
industry. China should “promote companies so that they can move their
processing to Southeast Asia and export their products back to China,” she
said. Digging Out of the Doldrums
The future was definitely on the mind of China’s regulators, but
for traders and processors, China’s current market doldrums were far more
pressing. During the convention’s first day, three panel discussions featuring
traders and processors from China and exporting countries addressed how to
resolve those problems. David Chiao, principal of Uni-All Group (Atlanta) and
current president of the Bureau of International Recycling’s (Brussels)
Non-Ferrous Division, opened the first session by noting that China is
transitioning from a manufacturing to a service economy. “Where will the
material go that was going to China?” he asked.
Robert Stein, senior vice president
of nonferrous marketing at Alter Trading Corp. (St. Louis), replied that the
volume of scrap metal his company is collecting has declined with prices. “As a
result, our scrap, on a percentage basis, goes to the same place,” he
explained. Nonetheless, Stein said inflation—most notably the rising labor
rates in China—has made other countries far more attractive in terms of costs.
China’s increased environmental
regulation means scrap that would have been China-bound now remains in the
United States. “If our particular product can’t go to China for various
reasons, we have items we need to process further,” Stein said. Zorba is one of
those products: Because of environmental enforcement actions in China that
require processors to remove printed circuitboard fragments (which are common
in Zorba), Alter invested in technology that turns its Zorba into a product
suitable for U.S. die casters.
Stein also claimed that, due to the
Chinese government’s strict preshipment inspection requirements for scrap
exports, “China pays the highest price in the world for its scrap.” In theory,
the exporters bear the cost of those inspections, but, he noted, “the exporter
cost of the inspection is passed along to the importer.” And that’s a significant
competitive disadvantage, especially at a time of tightened margins.
Echoing Stein’s comments on the
high cost of preshipment inspection certificates was Salam Al Sharif, CEO of
Sharif Metals (Sharjah, United Arab Emirates) and president of the Bureau of
Middle East Recycling (Dubai, UAE), who agreed that “certificates and
everything else makes the price less viable.” Like other scrap processors and
traders, he’s in search of the “next China,” and he and others are focused on
India. India is experiencing an economic growth spurt, but it still needs a lot
of time to catch up to China, Sharif conceded.
Chinese participants on other
panels didn’t deny the high costs of doing business with China, nor did they
offer any hope that the situation would be remedied soon. Zheng Jianhong,
executive general manager of Ningbo Shimao Copper Industry Co. (Ningbo),
recounted that one large Chinese scrap company had performed a study in the
United States on the cost advantages of exporting scrap for processing in China—and
found none. “Labor-intensive products, such as No. 2 copper, have no cost
advantages, either,” he exclaimed. “So, in coming years, we will focus on
domestic recycling in China.”
It was a bleak conclusion for
exporters accustomed to seeing Chinese demand determine their growth. Though
China will undoubtedly continue to play a key role in the global nonferrous
scrap industry in the future, its relative importance—especially to the world’s
scrap exporters—will certainly be modulated by the exporters’ quest for new
markets and partners.
Adam Minter
is a freelance writer based in Kuala Lumpur, Malaysia, and author of Junkyard
Planet.
China’s Scrap Import Prospects Beyond Nonferrous
Nonferrous metals analyst Ju Guoxian of GF Securities (Guangzhou,
China) reported that the only major imported scrap commodity seeing growth at
the moment is plastics—up 4.7 percent, to 8.25 million mt, from 2013 to 2014.
Ju sees long-term, powerful growth in China’s domestic plastic scrap markets,
however. For example, according to his data, domestic plastic scrap collections
grew 46.4 percent, to 20 million mt, from 2013 to 2014, and glass collections
increased 0.7 percent, to 8.55 million mt.
What he called metal-oriented collections also grew: Domestic
scrap tire collections grew 14.7 percent from 2013 to 2014, totaling 4.3
million mt (500,000 mt of which is refurbished), while automobile collections
grew 18.8 percent, totaling 3.14 million mt, and domestically sourced scrapped
ship recycling grew from 65 to 142 ships, a 118-percent increase.