Producers, buyers and traders of copper—joined by commodity sector analysts and journalists—are trying to figure out how China’s intended ban on several scrap grades may affect that nation’s overall red metal supply situation.
China’s government, led by its Ministry of Environmental Protection (MEP), has taken a series of steps to inspect and regulate the nation’s use of imported scrap commodities. The inspections initially focused on plastics recyclers, but also have included metal recyclers who handle “Category 7” types of scrap such as discarded motors and plastic-coated wire and cable.
In mid-July, the government stated its intention to the World Trade Organization (WTO) to ban all types of Category 7 materials, which includes many forms of plastic scrap, mixed paper and scrap motors, wire and cable.
Subsequently, executives and managers in the red metals sector have been scrutinizing the policy changes and international trade data to try to determine how this ban will affect the way copper is supplied to China’s sizable manufacturing sector.
Commodities-focused reporter Andy Home of Reuters wrote in early August that the rising price of copper on the London Metal Exchange (LME) resulted from “a wake-up call [that] came in the form of news of a potential Chinese ban on some imports of copper scrap.”
Home says the bullishness is understandable initially, but may not have staying power. He refers to China as the world’s largest importer of scrap metal, a nation that takes in in more than 3 million metric tons per year. “The market’s bullish take is that a partial ban will mean heightened demand for imports of copper in other forms, whether mined copper concentrate or refined metal,” he continues.
That the proposed ban will not take effect until the end of 2018 is causing further bullishness, writes Home, since there is a “broad consensus among analysts that the recent surge in mined production will have dissipated by that stage.”
However, the delay in the ban also could mean the red metals market will have time to adjust, including by building inventories ahead of the deadline, says Home. Also, he writes, “There is nothing to stop this sort of scrap being dismantled outside of China before being imported under a different trade code.” The copper scrap thus will not be lost to the global market, says Home. “It will at some stage be processed, even if only partially or not at all in China.”
Analyst Gianclaudio Torlizzi of Milan, Italy-based T-Commodity has reached a similar conclusion. According to Torlizzi, China may only have imported about 1.2 million metric tons of copper scrap in 2016, and is likely to import a similar amount in 2017.
Those figures are based on the weight of the copper and not steel or plastic attachments that come with it. Delving into that aspect of the imports, Torlizzi says Category 7 red metal-bearing scrap is only around 14 percent copper by weight. Thus, he says, “Of the total 3.3 million metric tons of gross weight copper scrap imported by China in 2016, the total copper content of Category 7 material was around 300,000 metric tons, or about 8 percent of China’s refined copper imports.”
Continues Torlizzi, “Some quarters believe the material will still likely end up in China, but simply be dismantled and sorted elsewhere first, with other countries in Southeast Asia seen as likely destinations. If this is the case, ultimately the ban could amount to just a crackdown on some dismantling businesses in China seen as heavy polluters. Simply put, the ban is unlikely to affect China’s copper supply.”
A news item from Platts, posted to the Hellenic Shipping News website, says the Shanghai Futures Exchange (SHFE) price of copper also rose in early August, following confirmation from the China Nonferrous Metals Industry Association (CNIA) that it had been notified about the ban on scrap wire, cable and motors.
The news item also cites a report issued by Guixi, China-based Jiangxi Copper Corp. that concludes, “In the long run, the ban on scrap metal, scrap wire and scrap motor imports could spur some dismantling capacity in China to be relocated to Southeast Asian nations,” and after those dismantlers relocate, “China’s copper scrap imports are expected to rebound.”
The company also remarks that “the domestic copper rod sector has been hit hard by government restrictions on the copper scrap supply.”