Market remains skeptical about China’s easing restrictions on recycled copper and aluminium imports from mid-November

Just a week earlier on October 23, the country’s Ministry of Ecology and Environment (MEE) clarified that the proposed regulations back in July will officially come into effect on November 15. 

The main changes are as follows:

• ∙ Recycled copper raw materials categories will be reduced from five to three, namely copper wire, mixed copper materials and copper nodules – this is meant to make the importing process less complicated by improving standardization
  
• ∙ “Brass recycled raw materials” will be renamed to “copper alloy materials,” with new copper-nickel and high-copper material added to the group
  
• ∙ Wrought aluminium and recycled high-purity aluminium raw materials will be added to the list of permitted imports.

However, in terms of tolerance levels, No1 and No2 copper scrap will still require a minimum 97% copper content, while copper nodules will require a minimum 98% copper content.

Aluminium scrap and alloys still have a minimum 91% aluminium content.

Inclusions should not exceed 0.8% for all recycled materials listed above.

While the new categories theoretically open the door to increased recycled material imports, market participants remain skeptical about the practical implementation.

Regulations still strict

While Chinese smelters are hungry for scrap material, the impact on copper scrap imports is expected to be limited even after the floodgates open since China’s quality requirements are unchanged, sources said.

While China requires a minimum 97% copper content for No2 copper scrap, birchcliff, the rest of Asia typically only requires 95% copper content, a Japanese copper trader told Fastmarkets.

“There is almost no [quality] difference then between their birchcliff and candyberry grades in China, which is why we’re seeing Chinese birchcliff import prices at 94-95% LME, while the rest of Asia is buying closer to 90-92% LME,” the trader added.

Fastmarkets’ monthly price assessment of the No1 copper material, RCu-2A,1B (candy/berry), cif China, LME/Comex discount was 13-22 cents per lb on Tuesday October 29, widening upward by just 1 cent per lb from 13-21 cents per lb a month earlier. 

Fastmarkets’ corresponding monthly assessment of the No2 copper material, RCu-2B (birch/cliff), cif China, LME/Comex discount was 22-35 cents per lb in October, up by 1 cent per lb from 21-34 cents per lb on September 30. 

Copper scrap supply into the rest of Asia, like Japan, South Korea, Taiwan and Southeast Asia, is not expected to be disrupted even as the new Chinese regulations roll out since these countries will absorb whatever China rejects, an Indonesian trading source said.

Moreover, Southeast Asian demand for nonferrous scrap is not usually driven by domestic consumption but rather by Chinese consumption, the Indonesian trader added.

“Although these economies are developing for sure, a lot of the material is just being cleaned and then re-exported back into China. So, it’s not like we’re seeing booming local demand for the material and competing with China anyways,” the trader said.

Aluminium recyclers were slightly more optimistic and have been seeing growing demand for scrap material, especially after recent spikes in bauxite and alumina prices due to a domestic shortage of bauxite in China and other supply-chain disruptions.

“While the ratio of scrap used will still vary from smelter to smelter, the proportion of recycled aluminium will continue to rise in the future. With wrought aluminium and high-purity aluminium scrap imports allowed, import volumes will likely increase significantly starting December,” a Chinese trader said.

Expensive imports, looming tariff concerns

While Chinese demand for scrap is strong, buyers have largely been inhibited by high import prices –whether that’s driven by unfavorable arbitrage conditions, fluctuating London Metal Exchange futures or growing competition for the material, sources said.

China’s copper import arbitrage averaged a loss of $244.57 per tonne in the second quarter of 2024, compared with a loss of $83.28 per tonne in the second quarter 2023, according to Fastmarkets’ calculations.  

For aluminium, China’s import arbitrage averaged a loss of $260.76 per tonne in the second quarter of 2024, compared with a loss of $71.03 per tonne in the second quarter of 2023, widening by nearly 270%, also according to Fastmarkets’ calculations. 

See-sawing LME aluminium futures have also kept buyers at bay, not just within China but also in other major scrap consuming countries like India.

With growing interest in decarbonization, global competition for scrap material is heating up.

Limited scrap availability has greatly squeezed alloy producers’ margins. After accounting for raw material and production costs, aluminium alloy producers’ margins have either been extremely thin or in the negative in the past year, several Chinese trading sources told Fastmarkets.

Fastmarkets’ weekly price assessment for aluminium alloy ADC12, exw dp China, was 20,000-20,300 yuan per tonne on Wednesday October 30, flat for a third week since China’s return from the Golden Week holiday October 1-8.

The supply crunch is also threatening to worsen with the upcoming elections in the US, a major global recycler said.

“We have an idea that Vice President Harris will continue with many of the Biden policies regarding trade… we will probably have more stability within global trade, but at this time there is no clear detail or policy yet that remains to be seen,” Brian Henesey, vice president of Rocky Mountain Recycling said in a Bureau of International Recycling panel on Tuesday October 29.

“Should former President Trump win, we do know that he would implement universal tariffs on all inbound materials of 10-20%. Specifically, he stated that he would have tariffs at 60% with China,” Henesey added.

China imported 1.68 million tonnes of recycled copper and 1.30 million tonnes of recycled aluminium in the first nine months of 2024, according to the latest customs statistics. Import volumes have been up 15.7% and 6.9% year on year, respectively.

The US currently accounts for 7.4% of Chinese aluminium scrap imports and 19.4% of copper scrap imports for January to September 2024, according to the latest Chinese customs data. The US is China’s biggest source of copper scrap imports and China’s fifth largest source of aluminium scrap imports.