Copper: Chinese and Indian copper scrap processors face regulatory and tariff battles

Chinese copper scrap imports slumped by 35% in gross weight terms in the year to September following a ban on low grade scrap and the introduction of quotas for higher quality grades. With a complete ban on Category 7 scrap coming into force in 2019 and the prospect of further restrictions on Category 6 scrap and “zero” waste imports scheduled for 2020, it is not surprising that a number of smelters and fabricators are worried about the increasing likelihood of shortages in their secondary metal supplies over the next two years. Chiho Environmental Group, one of the world’s largest metals recyclers, is now looking to set up operations outside China as tighter restrictions on the copper content of scrap destabilises a business that has thrived for decades.

Chiho is in talks to form joint ventures in South and Southeast Asia to perform the manual disassembly of used electric motors and insulated wires and cables that is presently being done in Taizhou on China’s east coast. If the dismantling is moved offshore, then the material processed there would then be fit to be shipped to China. It is aiming for operations in multiple locations and may start some as early as next year. In a Bloomberg interview, Goh Kian Guan, CIO, said, “The new regulations, and the trade dispute between the US and China, are teaching us that it’s best not to have all our eggs in one basket. We always expected that environmental regulation would continue to tighten, but what we did not foresee back then was that it would be coming in with such force, and I think all market participants have been taken aback by the blanket approach”.

Meanwhile, in India, 3,500 recycling units are under threat of closure due to the government’s proposed move to triple or quadruple import duties on non-ferrous metallic scrap, from the current level of 2.5% to 7.5-10%. Employing over one million skilled and unskilled workers, these units are owned largely by unorganised sector players. These firms have gradually overcome the transitional phase of shifting from non-tax to the goods and services tax (GST) regime. “In fact, primary metals producers in India do not want secondary metals producers to exist, hence they have lobbied the Government to seek an abnormal rise in import duty on metallic scrap”, according to Kishore Rajpurohit, Director of the Metal Recycling Association of India. Being a cheaper substitute to the primary metals in India, domestic producers don’t want consumers to receive articles made by secondary producers at lower prices.

Roskill view:
Restricted availability of copper scrap compels producers to replace these shortages with higher purchases of concentrate and anode and blister. Consumers have no alternative but to replace scrap shortfalls with larger purchases of cathodes, thereby tightening the refined market and raising the prospect of higher prices and producer premiums.

To discuss the copper market with Roskill, contact Jonathan Barnes: