Concerns loom over weak market fundamentals amid launch of new Chinese state-owned recycling company

The company will be backed by a 10-billion-yuan ($1.4 billion) capital injection from the State-owned Assets Supervision and Administration Commission of the State Council, according to the statement.

It is jointly owned by several industry giants, namely China Baowu Steel, China Petrochemical Corporation and China Resources Group – which will own 20% equity each, as well as the Aluminum Corporation of China and China Minmetals Corporation – which will own 10% equity each.

The new entity will consolidate relevant assets and businesses of state-owned central enterprises through market-oriented restructuring and integration, the CRRG’s chairman Liu Yu said in the announcement.

It aims to become a comprehensive solution provider, covering various key renewable resource recycling categories, including warehousing, processing, distribution, recycling, standard setting, and output, Liu said.

To achieve this, China Resources Recycling Group plans to establish several specialized subsidiaries. These subsidiaries will focus on areas such as scrap steel recycling, electronic waste recycling, new energy vehicle battery recycling, wind and solar equipment recycling, non-ferrous metal recycling, and plastic waste recycling, according to the announcement.

By leveraging its position as a leading enterprise, the company aims to drive standardization and orderly development of the industry, particularly supporting smaller and medium-sized enterprises, according to the statement.

Boost in scrap demand expected but tight supply could limit upside potential: sources

So far, the lack of details on the company’s specific plans has led to uncertainty among market participants, sources told Fastmarkets.

While some market participants anticipate a boost in scrap demand and improved standardization of scrap grades, others fear that tight supply and weak downstream sectors may limit upside potential in the short term, sources said.

“With a lack of details available, it’s still too early to tell how the new enterprise will impact the market. But of course, long-term scrap demand is expected to grow,” a Chinese copper scrap trader told Fastmarkets.

Copper scrap has grown increasingly pivotal for Chinese smelters in the face of tightening copper concentrate supply, according to sources.

“But whether or not China can bring in the material also largely depends on arbitrage conditions and customs checks, but long delays and huge losses have been limiting scrap imports,” the trader added.

Fastmarkets’ monthly price assessment of the No1 copper material, RCu-2A,1B (candy/berry), cif China, LME/Comex discount was 13-21 cents per lb on September 30, narrowing by 1-2 cents per lb from 14-23 cents per lb on August 26.

Fastmarkets’ corresponding monthly assessment of the No2 copper material, RCu-2B (birch/cliff), cif China, LME/Comex discount was 21-34 cents per lb on September 30, narrowing by 2-3 cents per lb from 23-37 cents per lb a month earlier.

There are expectations among market participants the establishment of the new SOE is unlikely to alleviate downstream demand issues, sources said.

Concerns over the flagging construction and automotive sectors have also been crimping aluminium alloy and scrap demand, sources told Fastmarkets.

China’s passenger vehicle sales posted five straight months of decline before logging a recovery in September, according to data from the China Passenger Car Association (CAPA).

Market participants Fastmarkets spoke to attribute the uptick in sales to the central government’s trade-in policy to support large-scale equipment upgrades and consumer goods replacement.

The policy is largely expected to improve scrap collection and drive transitions to new energy vehicles, which is a key downstream sector for nonferrous scrap consumption.

Fastmarkets’ weekly price assessment for aluminium alloy ADC12, exw dp China, was 20,000-20,300 yuan per tonne on Wednesday October 23, unchanged from a week earlier. Prices have been hovering around 20,000-20,300 yuan per tonne levels since late September.

Meanwhile, new home prices were down for the 15th straight month in September, according to data from the National Bureau of Statistics. A sluggish construction sector tends to dampen buying appetite for rebar, and consequently ferrous scrap, sources said.

Fastmarkets’ weekly price assessment for steel scrap heavy scrap, domestic, delivered mill China was 2,510-2,620 yuan per tonne on October 25, unchanged from a week earlier, after falling by 50-70 yuan per tonne from 2,560-2,690 yuan per tonne in the prior week.

China’s decarbonization push

The Chinese government has often highlighted the importance of scrap usage for the country’s decarbonization goals, sources said.

The National Development and Reform Commission (NDRC) announced plans in 2021 to grow the country’s steel scrap consumption to over 300 million tonnes by the end of 2025 and have 15% of its total crude steel output produced by electric arc furnaces (EAFs). As of August this year, around 10% of China’s steel output is produced by EAFs.

China retained its position as the world’s largest user of recycled steel in the first half of 2024, according to the latest quarterly report by the Bureau of International Recycling published on October 8.

Its recycled steel scrap consumption came in at 122.54 million tonnes in the first half of 2024, up by 5.4% year on year in the first half of 2024 to 122.54 million tonnes, despite a 1.1% decline in the country’s crude steel production to 530.57 million tonnes the same period, BIR data showed.

For nonferrous scrap, the NDRC is aiming to grow scrap utilisation to 20 million tonnes by 2025, with a breakdown of 4 million tonnes of copper scrap, 11.5 million tonnes of aluminium scrap and 2.9 million tonnes of lead scrap.

The Chinese government had also renewed its commitment in July to raising secondary aluminium usage in its latest action plan to tackle high carbon emissions from the sector.

In the same month, China’s Ministry of Ecology and Environment called for comments on new draft regulations that would allow for more imports of recycled copper, aluminium and alloy raw materials.

Industry players have welcomed the raft of measures, with China’s ten largest copper producers by volume pledging in 2022 to have recycled copper make up 25% of their total production by 2025.

China’s total output of recycled nonferrous metals came in at 9.6 million tonnes from January to June in 2024, up by 8.8% from the same period a year earlier, according to a separate BIR report published on October 10.

Output for aluminium scrap totaled 5.2 million tonnes, up by 11.8% year on year, while copper scrap totaled 2.25 million tonnes, up by 10.8% from a year earlier, followed by lead scrap which totaled 1.5 million tonnes, up by 1.4% in the same period.