Analysis: China’s metals sector continues to influence global markets

In 2019, as moves by Chinese officials pointed to a diversion of the world’s exported recycled materials to China, Atlanta-based trader David Chiao of Uni-All Group Ltd. said, “China may be out of the market but not out of the equation.”

Several years later, the comment made at a Bureau of International Recycling (BIR) gathering remains relevant as government-related factors in the global steel and nonferrous metals sectors tie into China’s role in the global manufacturing sector.

For more than 10 years, China’s government has erected hurdles and barriers designed to reduce its increasing hunger for recycled metal, paper and plastic, most often citing a desire to prevent unwanted materials from arriving as contaminants and residuals.

In the nonferrous sector, the reaction from buyers inside China and sellers overseas has been to set up longer supply chains with intermediate countries (often in Southeast Asia) performing sorting, processing and transshipment steps.

Because China (which contains about 17 percent of the global population) produces between 50-60 percent of the world’s steel, aluminum and copper, this “triangular trading” pattern is mirrored in the opposite direction by the trade in finished and semifinished metal.

This year, as China continues to churn out smelted and refined metal and nations enact tariffs to stanch the inflow of those metals, traders and recyclers are coping with the shifting circumstances.

In the steel industry, Atilla Widnell, managing director of satellite tracking service Navigate Commodities, has provided an overview of recent steps taken globally to protect steel mills from being made obsolete by Chinese overcapacity.

In a mid-September LinkedIn post, Widnell first mentions the 50 percent U.S. tariff, followed by actions taken or pending in the European Union, India, Vietnam, South Korea, Japan and Brazil—all designed to add costs to steel imports. He does not mention brewing discontent in the Association of Southeast Nations (ASEAN) region, where steel recycled-content electric arc furnace (EAF) producers have lost market share to Chinese-funded blast furnace operations.

“Trade measures are now reaching critical mass,” Widnell says, adding that blocked trade lanes are beginning to bring down the price of steel in China and nearby countries. “[Within China], the playbook is export steel first while lanes remain open and margins are positive.”

For ferrous scrap recyclers in the U.S. and other scrap-surplus nations, that page from the playbook can lead to suppressed global demand for ferrous scrap at overseas melt shops. That, in turn, can put a ceiling on recycled steel prices for U.S. processors and traders.

In the nonferrous sector, two different traders have indicated to Recycling Today this month that government agencies are engaged in one of their periodic examinations of inbound recycled metal shipments.

While protectionism for primary metal producers is sometimes blamed as the motive for such crackdowns, officials tend to point to suspected deceptions and misrepresentations made by recycled metal buyers to avoid full tax payments.

This year, the motive for such deceptions clearly can be tied to triple-digit tariff rates on U.S.-generated recycled metal shipped to China.

As with finished metal exported from China, these recovered metal grades have been adopting triangular routes that involve intermediaries not only in the ASEAN region but also in Japan or South Korea.

Widely traded aluminum and red metal scrap grades generated in the U.S. will have little trouble finding buyers in a landscape where recycled-content aluminum and copper has gained favor in numerous industry sectors.

However, if China’s government makes a concerted effort to freeze out U.S. nonferrous recycled metal as part of a lingering, contentious trade dispute, processors and traders in the U.S. will be confronted with—to use Chiao’s phrasing—whether being removed from the Chinese market changes their trading margin equation.