Scaling back down

Features - International Markets

Business and government leaders in China’s metals industry seek to minimize pain as the sector exits its hyper-growth stage.

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March 8, 2016

Testament to China having surpassed its peak stages of infrastructure building and rapid urban migration was its decline in steel consumption and output in 2015. The nation’s steel industry—already widely regarded to have been in an overcapacity situation in 2014—finally scaled back output in 2015 as China’s pace of highway, bridge and apartment tower construction receded from the pace of the previous 15 years.

Some sectors within China’s nonferrous metals industry face similar circumstances, with copper in particular connected to the building boom of the previous two decades.

Presentations and group discussions at the 2015 convention of the China Nonferrous Metals Industry Association (CNIA) and its Recycling Metal Branch (CMRA), held in early November in Ningbo, China, provided insight into the state of China’s secondary metals industry as it copes with fundamental economic changes.

Topics at the event ranged from the health of the leading nonferrous sectors to the ongoing role of imported scrap materials to the response of government agencies in China to both support and police the secondary nonferrous metals industry.

PRODUCTION ISSUES

Representatives of the CNIA and CMRA warned that the “new normal” economy of China likely means an end to rapidly growing metals production capacity. At the November event, Ren Xudong, executive vice president of the CNIA, pointed to the copper sector in particular as one that is climbing back down from an earlier peak.

Figures for secondary metals production in China for the first nine months in 2015 show aluminum output up 5.5 percent and lead up by 15 percent, but secondary copper production has dropped by 7.1 percent, according to Ren.

The figures likely reflect the health of the Chinese automotive industry, which consumes aluminum, as well as lead in the form of lead-acid batteries, versus its building industry, where less copper and brass have been needed.

The secondary nonferrous sector, Ren said, is “important to help establish the green, low-carbon system” China is seeking, but companies will have to seek their own opportunities. “We need to be confident and take measures to look for new areas of growth in this industry,” Ren stated.

For secondary aluminum producers in China (and their overseas scrap suppliers), one opportunity could lie in potential feedstock difficulties facing Chinese primary aluminum producers in 2016.

In its January 2016 “Metallurgical Bauxite & Alumina” report, London-based Roskill notes that China, the world’s largest alumina and aluminum producer, lost Indonesia in 2014 as a significant supplier of bauxite to feed its alumina refineries, and now a supply disruption may arise from Malaysia.

Following Indonesia’s decision to implement a ban on the export of unprocessed ores [in 2014], China’s aluminum industry “turned to Malaysia in an attempt to fill the void,” Roskill writes. “Malaysia’s ability to rapidly increase its output was demonstrated by its production soaring almost 600 percent from 2014 to 2015 [and] Malaysia [accounted] for 45 percent of all bauxite delivered to China in 2015.”

However, the Roskill report authors say, “The viability of Malaysian bauxite as a long-term replacement for Indonesian material remains in question. In January 2016, Malaysian officials announced that a three-month moratorium on bauxite mining in the country would be implemented with effect from Jan. 15, 2016. The ban follows increasing environmental fears surrounding pollution of rivers and the sea in the country’s leading bauxite-producing state of Pahang. Exports were granted during the moratorium period to clear stocks and relieve ports of material.”

The Roskill report refers to Vietnam and Guinea as nations that could increase their bauxite exports to make up for any Malaysian shortfall. However, Vietnam already has expressed environmental concerns, and production in Guinea “remains shackled by a lack of rail infrastructure and port facilities,” the report’s authors state.

Any effects on supply and pricing may be short-lived, Roskill says, noting that Chinese companies may have the ability to mine for additional bauxite within China’s borders and that a temporary shortage is not likely to have a lasting impact because, globally, “the alumina and aluminum industries have been in a state of oversupply for the past few years.”

A primary supply gap that could help boost China’s aluminum scrap imports may be one of the few bright spots on the U.S. nonferrous scrap export scene.

BARRIERS TO SUCCESS

As things stand, Chinese nonferrous metals producers have been scaling back their purchases of imported scrap. While the phenomenon likely is tied in part to the slowdown in the copper sector, it also partially may be because of trade policies in China, said some members of a panel discussion at the convention in Ningbo.

Increased inspection regimens and fees imposed by a coalition of China’s customs and environmental agencies have been necessary to stem the shipment of substandard materials, panelists said, but several policies and procedures are unnecessarily burdensome or even off-target, others said.

Robin Cai of Hong Kong-based Alter Metal Recycling Ltd., a subsidiary of St. Louis-based Alter Trading Co., said Chinese regulators are considering allowing wider (nonlicensed) importation of higher, cleaner grades of scrap, such as No. 1 and No. 2 copper.

The grades have not been problematic, are valued by metals producers and, if misclassified shipments arrive, the buyers will be as eager to reject them as any government inspector would, Cai said. She urged regulators to allow Chinese metals producers to have wider access to these materials, saying it would improve the competitiveness of Chinese companies in that sector.

The current inspection regimen to ship these nontroublemaking materials can add $1,000 of cost per container, Cai said. “This is creating a higher cost for Chinese metals producers. These are high-demand quality products. If they do not come to China, they will flow to other countries.”

Robert Stein of Alter Trading Co. expressed the same viewpoint. “It is not as if there are mountains of scrap looking for homes,” he said. For scrap exporters, “Rising costs in China have made this less of an attractive market for [many] materials,” he added.

Javier Ingles Fenoli of Spain-based Hermanos Ingles S.A. was more sympathetic to the existing China Certification & Inspection Group (CCIC) system, saying CCIC “plays a positive role” in dictating “who can do business in this field. CCIC plays a core role in protecting our environment.”

Cheng Jianhong of Yuyao, China-based copper producer Ningbo Shimao Copper Industry Co. Ltd. offered her perspective that current scrap inspection fees and processing requirements have caused her company to shift its focus away from using scrap and toward using cathode instead.

“We have used copper scrap for many years, but we have closed down that part of the business,” she said. “China has lost its cost advantage as a scrap consumer.”

As a copper producer, she said she is obligated to compare the value of scrap from different countries and also the value of using copper cathode.

Panelists agreed that regulators in China, as in all nations, would continue to change the regulatory climate in response to environmental and economic factors.

Salam Al Sharif of United Arab Emirates-based Sharif Metals International said he supported China’s mission to regulate as it sees fit but encouraged the country to favor “regulations that boost business and are not suppressors.”

WHAT SHADE OF GREEN?

For Chinese regulations to be more favorable toward scrap imports, several of the nation’s government agencies may need to be convinced that imported scrap plays a positive role not just in the economy but also for the environment.

Two representatives from government agencies who spoke at the convention in Ningbo said the Chinese government would provide support to the recycling industry during the next five years, while a third warned recyclers to be mindful of causing pollution.

Speaking at the opening session of the convention, Gao Yuahu of China’s Ministry of Industry and Information Technology (MIIT) said the “new normal” in China points to slower economic growth, but he added that recyclers have an advantage.

“We want to transform the green sector as the new strength of our economy,” Gao said regarding several policies in the works in Beijing. These policies would “coordinate, prioritize and develop the low-carbon circular economy,” he added.

The movement may spell trouble for older smelter and refinery operators, even if they do recycle metal. “The recycled metal industry has become an important priority, [but] we have developed specific plans to phase out the backwards capacity,” Gao said, referring to polluters and energy-intensive operators. “We still face problems with companies with small-scale and deficient technology.”

Ma Rong of China’s National Development and Reform Commission (NDRC) also tied the nonferrous recycling industry to the circular economy effort and noted that President Xi Jinping has stated that “waste should be turned into resources.”

She also encouraged recyclers to upgrade their technology. “Nonferrous separation and extraction is no easy job,” Ma acknowledged and said agencies such as the NDRC can “cultivate key enterprises” as they take technological forward steps.

Ling Jiang of the China’s Ministry of Environmental Protection (MEP) concentrated on enforcement, saying that China’s inspection and enforcement actions have resulted in gradual improvements and the weeding out of bad players.

Despite improvements, “We cannot ignore the problems,” he said. “The development of this industry is tied to self-discipline. We should grasp the dividends and avoid the hazards. I hope all of you can be self-disciplined [and] avoid the illegal smuggling,” Ling stated.

The author is editor of Recycling Today and can be contacted at btaylor@gie.net. Portions of this feature appeared in the January/February 2016 issue of Recycling Today Global Edition.