MAY/JUNE 2007
High ferrous import prices and a maturing market resulted in a low-key, collegial environment for the third China International Metal Recycling Forum.
BY ADAM MINTER
In the short but complex history of China’s international scrap trade, the first China International Metal Recycling Forum was a landmark event. Held in 2003 in Guangzhou, then the center of China’s rapidly expanding nonferrous market, the forum was a raucous affair attended by major international traders and association leaders on their first visits to China, Chinese consumers eager to finally meet their international suppliers, and Chinese government officials anxious to bring order to the industry. Now, four years later, much has changed. The low-key third edition of the forum, held March 18-20 in northern Dalian, perhaps reflected the maturity of China’s international scrap market and a downturn in the ferrous scrap trade.
With only 201 attendees (compared with more than 450 in 2005), the 2007 forum was the smallest yet. At past forums, impromptu trading floors coalesced in hotel lobbies and outside of meeting rooms, but this year’s event saw no such activity. Several attendees ascribed the change to record high ferrous scrap prices and recent Chinese government efforts to cull the list of approved ferrous importers. Reportedly, deals still got done, but primarily among longtime acquaintances and in much larger volumes than what occurs at most other international conferences. Nevertheless, as in past years, the forum presenters gave a detailed and candid view of the current state of China’s scrap trade—its ferrous sector in particular—as the industry adjusts to the evolving regulatory environment created by China’s 11th Five-Year Plan.
Ferrous in Transition
With China’s impressive growth into the world’s leading steel producer, and because the forum traditionally focuses on ferrous, that industry segment generated the most interest from attendees. Wu Jianchang, vice president of the China Iron & Steel Association (Beijing) and a host of the conference, delivered a detailed picture that celebrated China’s robust and growing steel sector and scrap’s role in it. In 2006, China produced 418.8 million mt of crude steel and 466.8 million mt of steel products overall. Domestic consumption of that total reached about 82 percent, or 384.6 million mt of steel, Wu said. Pig iron continues to dominate the Chinese ferrous market, with 2006 production reaching 404.2 million mt, up nearly 20 percent over 2005. Net steel exports were 43 million mt, up about 110 percent compared with 2005. Of those exports, significant growth occurred in six categories of high-value products, including coated plate, stainless, and steel alloys, which at 6.2 million mt were more than three times the 2005 totals.
Even though domestic iron ore production increased 38 percent from 2005 to 2006, to 558.2 million mt, the raw material demand of Chinese pig iron producers is far outpacing the iron ore industry’s growth, Wu said, thus China is becoming more dependent upon iron ore imports. In 2005, 36 percent of China’s iron production was based on imported ore; in 2006, imports were the basis of 52 percent of iron production. Wu spoke approvingly of how Baosteel (Shanghai) negotiated new iron ore prices from Australian and Brazilian mines on behalf of the entire Chinese iron and steel industry. “This marked the obviously improved position and strengthened capability of China’s iron and steel enterprises in international negotiation and price setting,” he said.
Wu also addressed the domestic picture for ferrous scrap. Even though China produced 3.54 billion mt of steel from 1949 to 2006, he said, most of that has been produced since 2000, leaving the iron and steel industries facing a steep undersupply of obsolete scrap. New technologies—Wu specifically pointed to continuous casting—also have reduced the amount of production scrap in the raw material stream. In 2005, total Chinese demand for ferrous scrap reached 52.9 million mt, Wu said, of which about 19 percent, 10.1 million mt, was imported. Though 2006 ferrous imports dropped nearly 50 percent, to 5.4 million mt, China’s overall ferrous scrap consumption actually increased to 55.1 million mt. No explanation was given for how the country filled that import gap.
Despite the steep drop in import volumes, the United States remains China’s top supplier of ferrous scrap, shipping 1.15 million mt in 2006, Wu said, 56 percent less than in 2005. (U.S. Department of Commerce and U.S. International Trade Commission data list Chinese ferrous exports at 2.97 million in 2005 and 2.03 million in 2006, a nearly 32 percent decline; the inclusion of certain grades might account for the differences between the two sets of numbers.) Japan was a close second, shipping 1.11 million mt, down 42 percent. Russia had the biggest one-year decline, from 89.1 million mt in 2005 to 24.1 million mt in 2006—a stunning 72.9 percent drop. Unexpectedly, exports from the Philippines increased 480.5 percent, from 5.9 million mt to 34.4 million mt, over the same period.
Yan Qiping, secretary general of the China Association of Metal Scrap Utilization (Beijing), presented a slightly different picture of China’s scrap ferrous market, asserting that the Chinese scrap steel supply actually reached 67.2 million mt, up 6.1 percent from 2005. Yan agreed with Wu on the import figures, but he provided a different and more detailed picture of the domestic market. According to his numbers, for example, production scrap reached 27.5 million mt in 2006, up 23.9 percent from 2005, and domestic collections reached 38.1 million mt, up 3.4 percent.
Though no one provided statistics on the nature of domestic scrap collection—most likely because no accurate numbers yet exist—Gao Yanli of the China National Resources Recycling
Association (Beijing) spoke about China’s nascent ELV recycling efforts. China’s growing number of passenger cars already provide 2 million mt of steel to the steel industry annually, Gao said, as well as 50,000 mt of copper to the nonferrous industry. In 2006 that steel came from 700,000 scrapped cars, down from 900,000 in 2005. Gao attributed the decline to looser regulations on mandatory car retirement.
Forum presenters generally agreed that the steel scrap supply is not growing fast enough to meet demand, but there was no consensus on the extent of that demand today and in the near future. For example, Wu Jianchang suggested that demand will exceed 70 million mt in 2010, whereas Yan Qiping predicts the country’s demand will reach that level this year. Regardless of future demand, statistics indicate that China is actually using less scrap in its steel over the last few years. In 2005, electric-arc furnaces produced 11.7 percent of the country’s steel, down from mid-1990s highs of 20 percent to 23 percent. The factors contributing to this decline—high scrap prices and high industrial electricity prices—will continue to affect the growth of China’s ferrous scrap demand in the short- and medium-term.
Forum presenters concurred that the steep decline in ferrous scrap imports was almost solely the result of record-high prices in 2006. Wu Jianchang blamed the high prices in part on a “disorganized” Chinese marketplace with roughly 500 ferrous scrap importers. “Currently, most enterprises, small
or big … purchase steel through go-between companies,” which increases their costs, he observed. He encouraged Chinese steel enterprises to “gradually realize unified purchase from abroad” to alleviate this problem.
This was not the first time a high-ranking representative of the Chinese steel industry made such a suggestion. Several speakers advocated this strategy at the 2005 forum, and since then at least two provinces have undertaken large-scale unified purchasing. For CISA’s Wu and others, consolidated scrap purchasing is merely the natural extension of Baosteel’s role in negotiating ore prices for the entire Chinese steel industry. In both cases, in their view, consolidation brings “order” to the market. Yan Qiping of CAMU went so far as to claim that China’s many ferrous importers “have caused disorganized competition and hindered the healthy development of the imported scrap market.” Like Wu, Yan encouraged the establishment of centralized ferrous scrap procurement. Smaller-scale consolidated buying programs are already supported by the national government and “accepted by most of the steel companies,” he noted.
Nonferrous Shifts
Because of the forum’s focus on ferrous, it lacked the detailed analysis of China’s nonferrous situation that other Chinese scrap conventions provide. Nevertheless, Wang Jiwei, vice chairman and secretary general of the China Nonferrous Metals Industry Association, Metal Recycling Branch (Beijing), provided an overview of China’s secondary nonferrous markets and prospects. Secondary nonferrous production reached 4.5 million mt in 2006, he said, up 21 percent from 2005. Specifically, copper production reached 1.7 million mt, up 18 percent; aluminum reached 2.4 million mt, up 21 percent; lead reached 390,000 mt, up 39 percent; and zinc reached 110,000 mt, up 29 percent. Domestic collections constituted roughly 2 million mt of China’s nonferrous scrap metal supply in 2006, Wang said.
Of that domestic total, roughly 600,000 mt was copper scrap, reported Zhang Xizhong, director of the Beijing Zhongse Metal Recycling Institute. Neither Zhang nor other presenters gave
a specific breakdown of other domestically generated scrap metals, but imports were another matter. Customs statistics Wang provided indicated that China imported 6.8 million mt of nonferrous scrap from more than 120 countries in 2006, up 3.1 percent from 2005. Included in that total were 1.8 million mt of aluminum, up 5.3 percent from 2005; 70,000 mt of zinc, down 5.3 percent; and 4.9 million mt of copper, up 2.5 percent from 2005. Zhang Xizhong estimated that—after recovery—these imports contained 1.6 million mt of copper. Japan dominated the Chinese nonferrous import market, providing 30 percent of imports, or 2 million mt shipped, followed by the United States (1.1 million mt), Australia (830,000 mt), and Spain (550,000 mt). Just as in ferrous scrap, the Philippines has emerged as a powerful new presence in the China trade, shipping 520,000 mt of nonferrous in 2006.
Wang emphasized two relatively recent and related developments in China’s nonferrous sector. First, he pointed out, the geographic center of the Chinese scrap metal industry is shifting away from its traditional base in south China (especially Guangdong province) to western and northern China. Encouraging this trend are several factors: government support for concentrated recycling parks away from Guangdong, the development of domestic recycling centers in China’s 34 provinces, and the stricter regulation of scrap imports, which has had a deleterious effect on south China’s (and Hong Kong’s) long-standing trade in smuggled materials. The result is striking: Zhejiang province (including Ningbo and Taizhou) received 43 percent of China’s nonferrous scrap imports in 2006 (followed by Shanghai and Tianjin), while Guangdong received only 39 percent.
The second trend Wang noted is the ongoing development of China’s domestic recycling trade. He pointed to the launch of three large-scale domestic trading and collecting markets—Miluo in Hunan province, Linyi in Shandong province, and Changge in Henan province—as well as several smaller-scale, niche material parks. Government funds at least partially support these new parks in an effort to spur innovation in the recycling sector. (Wang said the government evaluated 82 such projects for funding last year.)
Wang expressed strong hope that the domestic recycling industry’s growth would at some point overtake China’s need for imported nonferrous scrap, but he and other presenters were realistic about the challenges of creating a robust Chinese domestic recycling sector. It’s more an issue of transformation than creation, suggested Xu Dongsheng, deputy secretary general of the China Household Electrical Appliances Association (Beijing). “Currently, most scraps are collected by individual collectors with tricycles going through every lane and street,” he observed. “It is questioned whether this system will be able to follow social and governmental will to send scraps to appointed regulated factories for recycling and processing.” Four government-supported appliance recycling sites recently failed, Xu said, because they simply could not compete with the small-scale tricycle peddlers for a steady supply of scrap appliances.
Though peddlers may rule the markets now, Wang Jiwei left little doubt that government policy will consolidate the domestic collection system into well-regulated and concentrated parks not unlike the ones that have brought order to segments of the scrap import market. For the last four years, government policy has encouraged the elimination of small-scale smelters in favor of large- and medium-scale smelters that will, presumably, be inclined (or required) to buy from the domestic recycling parks. Wang’s printed speech mentioned several of these, including the revelation that China is encouraging its large primary metal producers—most of which are state-owned—to invest in secondary metals.
Waiting for the Law
Wang Jiwei’s speech also presented the most detailed portrait yet of current and upcoming regulations related to the Chinese scrap recycling industry. Perhaps of greatest interest was his announcement that in January the Chinese government completed a draft of the country’s “Circular Economy Law” that currently is undergoing review. The legislation—essentially China’s long-awaited national recycling and conservation law—will be in effect by the end of the year, Wang said.
The government also is drafting several “affiliated regulations,” he said, including “management regulations on recycling of home appliance and electronics scrap,” “regulation on scraps collection,” and “taxation policy on scrap collection and recycling.” He offered no details on what these regulations contain or who will enforce them, however.
As at other recent Chinese scrap conventions, both the State Environmental Protection Agency and the General Administration of Quality Supervision, Inspection & Quarantine sent representatives to address the forum on relevant issues related to scrap metal. Zheng Yang, a staff member of SEPA’s solid waste division, gave a broad overview of Chinese environmental law related to scrap. His description of a recent environmental inspection and study SEPA conducted at 300 scrap processing companies in Hebei, Zhejiang, and Jiangsu provinces was surprising. “We found problems,” Zheng said without elaborating, “and due to these studies, we will issue new regulations.” He did not indicate what those regulations will be or when the agency will issue them.
Hao Yilei, an AQSIQ representative, spoke primarily about new registration procedures for Chinese scrap importers, making his speech one of the best-attended of the forum. The new requirements, based upon a two-year study, will require all trading firms—i.e., importers—to register, Hao said. (Processing plants will not have to register so long as they are not importing or trading.) The application process is similar to what AQSIQ currently requires of foreign suppliers.
Hao also provided updated statistics on the 3,500 foreign supplier registrations and their shipments. Of the 265,990 scrap shipments imported into China in 2006, he said, 3,903 (1.47 percent) were disqualified. Of those disqualifications, 689 (17.6 percent) were for environmental reasons. Kazakhstan was the top environmental offender, with 209 disqualifications, followed by Uzbekistan (63), the United States (60), and Russia (40). Though the United States had far fewer total disqualifications than other leading countries, Hao was quite clear that the United States more than made up for the shortfall in sheer volume of disqualified scrap, most of which was computer hardware. After e-scrap, radioactivity, “poisonous material,” and flammable material were the other leading causes of environmental disqualifications.
In past years, environmental disqualifications and the AQSIQ licensing requirements (announced at the first forum, in 2003) provoked heated discussions inside and outside of the forum hall. But this year there was very little discussion, even after the forum’s presiding officers opened the floor to questions and comments. Instead, there was a generally collegial atmosphere among the delegates. Government officials, who in prior years rushed to leave the forum, seemed willing to linger and talk with foreign and Chinese attendees alike. This low-key environment is entirely new at Chinese scrap forums, and whether it is an indication of maturity, evolving markets, or genuine lack of interest in the regulatory environment is a question that will likely be answered after the implementation of the Circular Economy Law later this year.
Adam Minter is a journalist based in Shanghai, where he writes about business and culture for U.S. and Chinese publications.