COP­PER SCRAP A KEY BAT­TLE­GROUND IN CHINAS WAR ON WASTE

The Gulf Today - Business - - SPECIAL REPORT -

China’s self-de­clared war on “for­eign garbage” has come to Amer­ica. From May 3 all US ship­ments to China of sec­ondary ma­te­ri­als, from scrap metal to plas­tics and waste pa­per, are sus­pended for a month.

China Cer­ti­fi­ca­tion and In­spec­tion Group (CCIC) North Amer­ica, the sole body li­censed with check­ing US car­goes be­fore they sail, will not be al­lowed to is­sue ex­port cer­ti­fi­ca­tion doc­u­ments un­til June 4.

Dur­ing the one-month sus­pen­sion ev­ery con­tainer with US waste ma­te­rial at Chi­nese ports will be opened, in­spected and, if nec­es­sary, un­dergo lab­o­ra­tory test­ing.

The rea­son, ac­cord­ing to China’s Gen­eral Ad­min­is­tra­tion of Cus­toms (GAC), is that “mul­ti­ple ship­ments” of US scrap have failed to meet tough new en­vi­ron­men­tal reg­u­la­tions since the start of the year.

The rest of the world is only now wak­ing up to how se­ri­ous China is about keep­ing “for­eign rub­bish out of our coun­try’s gate”, as GAC ex­pressed it in its no­ti­fi­ca­tion.

That, of course, is likely to have im­pli­ca­tions for the cop­per mar­ket, with China the des­ti­na­tion for al­most half the world’s cop­per scrap ex­ports, ac­cord­ing to the In­ter­na­tional Cop­per Study Group.

Last year China im­ported 3.56 mil­lion tonnes in gross weight.

A ban on im­ports of lower-grade Cat­e­gory 7 scrap, such as mo­tors and insulated wire that has to be dis­man­tled and cleaned be­fore be­ing used as a metal­lic in­put, was an­nounced in July last year and will be ef­fec­tive from the end of this year.

An­a­lysts are broadly in agree­ment that this will af­fect some­thing like 300,000 tonnes of con­tained metal, with the net ef­fect off­set by im­ports of higher-grade ma­te­rial and more do­mes­tic re­cy­cling.

How­ever, new rules that took ef­fect at the start of March go way beyond sim­ply weed­ing out low­er­grade scrap.

The key is the con­cept of “car­ried waste”, which means any con­tam­i­nants in a ship­ment of scrap ma­te­rial. The Chi­nese au­thor­i­ties have set thresh­olds at 0.5 per cent of to­tal weight for pa­per, wood and plas­tic and 1 per cent for non-fer­rous met­als.

This upends the way the re­cy­cling in­dus­try has evolved in the rest of the world.

As the In­sti­tute of Scrap Re­cy­cling In­dus­tries (ISRI) − a US trade group − said in its for­mal re­sponse to the Chi­nese pro­pos­als, there are more than 150 spec­i­fi­ca­tions for non-fer­rous scrap, with im­pu­rity thresh­olds rang­ing from zero to 4 per cent.

“There is no other coun­try in the world that uses its own set of stan­dards as a ‘pass/fail’ test for im­ports,” ISRI said in a Nov. 15 sub­mis­sion to the World Trade Or­ga­ni­za­tion.

But that is pre­cisely what China is now do­ing, hence the month­long, con­tainer-by-con­tainer in­spec­tion at the coun­try’s ports.

Nor is this a case of cop­per scrap suf­fer­ing col­lat­eral dam­age from plas­tics or waste pa­per.

A spe­cific con­cern for GAC is scrap metal con­tain­ing what it terms “pow­dery sub­stances”.

The al­low­able thresh­old for pow­der con­tam­i­nants has been set at a dra­co­nian 0.1 per cent of to­tal weight, even though ISRI has pointed out that cer­tain types of cop­per ox­i­dise into cupric ox­ide pow­ders that are still cop­per and sat­isfy ISRI spec­i­fi­ca­tions.

DOM­I­NANT SUP­PLIER

The crack­down on US ship­ments of waste ef­fec­tively tar­gets the coun­try that has be­come China’s dom­i­nant sup­plier of cop­per scrap as im­ports from other, low­erqual­ity sup­pli­ers wind down.

In gross weight terms, China’s im­ports slumped by al­most 40 per cent to 553,000 tonnes in the first quar­ter.

How­ever, the im­plied pu­rity of those im­ports − cal­cu­lated by cross-ref­er­enc­ing the cus­toms depart­ment’s dollar value of im­ports against the cop­per price − jumped from 43 per cent to al­most 60 per cent.

The im­plied hit on cop­per units, there­fore, has been much smaller than im­plied by the head­line fig­ure; some­thing like a 5 per cent drop.

Coun­tries that have his­tor­i­cally supplied low-pu­rity scrap, such as the Philip­pines, Malaysia and Thai­land, have reg­is­tered steep drops in ex­ports to China in the first three months of the year. Only six of the top 20 sup­pli­ers achieved any vol­ume growth, with only two of those hav­ing been sig­nif­i­cant sup­pli­ers of scrap to China, namely Bri­tain and the United States.

Im­ports from the United States grew by 5.8 per cent in the quar­ter to 129,300 tonnes in gross weight.

In ton­nage terms this was only a mod­est 8,000 tonne in­crease, but the im­port share taken by the United States jumped to 23 per cent from 15 per cent in the same quar­ter last year.

China’s next largest sup­plier, Hong Kong, suf­fered a 63 per cent col­lapse to only 58,800 tonnes. In other words, China has slammed the door shut on its most im­por­tant sup­plier of cop­per in scrap form.

OK, so it’s only for a month. But there are two prob­lems with the time line.

First, can GAC meet its tar­get of “100 per cent open-box in­spec­tion and quar­an­tine” in only a month? Se­condly, how long un­til the next con­tainer-level check? Be­cause this is the way Chi­nese en­force­ment tends to work, as ev­i­denced by the rolling cam­paign of en­vi­ron­men­tal in­spec­tions that have caused tur­moil across in­dus­trial sec­tors over the past year or so.

Which both serve to in­ject fur­ther un­cer­tainty into what hap­pens to scrap flows this year.

If the elim­i­na­tion of Cat­e­gory 7 scrap is the “known known”, the com­bi­na­tion of the new “car­ried waste” thresh­olds and the en­force­ment of those stan­dards is a sig­nif­i­cant “known un­known”.

So too is any fol­low-on im­pact on China’s do­mes­tic mar­ket cop­per bal­ance.

Scrap feeds into the sup­ply chain in two ways, as a raw ma­te­rial for refin­ing and as a di­rect melt in­put by fab­ri­ca­tors.

It is the dark mat­ter of the cop­per uni­verse. Sta­tis­ti­cally ob­scure, its pres­ence is largely felt by proxy, ei­ther through its dis­place­ment ef­fect on other raw ma­te­ri­als, such as con­cen­trates, or for re­fined metal.

This year was al­ready shap­ing up for tec­tonic shifts in how this dark mat­ter flows be­tween gen­er­a­tors of scrap and the world’s largest buyer. But things could turn out to be more tu­mul­tuous still as China’s war on waste goes global.

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