By Megan Quinn
In its efforts to eliminate “foreign garbage,” China has not banned nonferrous metal imports, but nor are Chinese companies importing this material as they did even a year ago. In 2017, the United States exported 724,000 mt of copper and copper-alloy scrap to China and Hong Kong—72 percent of all U.S. copper scrap exports by volume, according to data from the U.S. Census Bureau. But buyers in China need government-issued import permits to bring in nonferrous metals. As of early March, the Chinese government had issued only “a tiny fraction” of its normal licenses, says Adina Renee Adler, ISRI’s senior director of government relations and international affairs. The number of copper scrap import licenses—and the tonnage of imports—from January to March fell almost 94 percent compared with that period last year, she says. In the seventh round of issuing licenses, at the end of February, the Chinese government approved zero permits for insulated copper wire, she adds, and it approved just “tiny volumes” of aluminum wire, motors, and other types of nonferrous metal.
Nonferrous traders have been bracing for this news for a while, Adler says. Rumors about nonferrous scrap import bans started months before China banned imports of certain paper and plastic scrap. The Chinese government has made it clear that it wants to continue eliminating imports of materials that can be “replaced by domestic sourcing,” she says. Many industry participants expect China to ban imports of what it calls “Category 7” metal scrap—motors, meatballs, insulated wire, and some mixed metal scrap—by the end of this year.
Even if recyclers find companies able to import nonferrous metal into China, the scrap will have to meet the country’s new technical standards for contamination, which China enacted March 1. The new thresholds—0.5 percent prohibitives for most scrap, including insulated wire and electric motors, and 1 percent for nonferrous—are much too stringent for many processors to achieve, Adler says.
Those standards have made traders much more cautious than usual, says Steve Solomon, president of Solomon Metals Corp. (Lynn, Mass.). “The last few months have been very tenuous,” he says. “Buyers are concerned about what to ship to China. They don’t want to buy something that would create a potential problem.” Toward the end of 2017, Category 7 scrap—insulated copper wire, No. 2 copper wire, and motors—were of particular concern, he says. “No one [in China] was buying, not knowing how the licenses would pan out,” he says.
This uncertainty means a lot of nonferrous scrap has nowhere to go, says a nonferrous trader on the West Coast. Wire choppers are “absolutely flooded” with No. 2 copper and insulated copper wire, for example, materials “that were once going to China, but now are staying in the U.S.,” he says.
Even those who do not trade directly with China are feeling the effects of the disruption, says incoming ISRI Chair Brian Shine of Manitoba Corp. (Lancaster, N.Y.). Manitoba buys, processes, and sells high-grade copper scrap to North American consumers. “Anybody who thinks they’re not impacted by what’s happening in China is wrong. [The markets are] too interconnected,” Shine says. “We don’t do much [direct] business with China, but we buy from dealers or industrial plants. Everyone is impacted, all up and down through the chain.”
A Glut of Material
Restricted import permits and uncertainty in the Chinese market have created a temporary bright spot for U.S. copper consumers, some of whom are courting new domestic prospects “to get their pick of material,” the West Coast trader says. “I am being offered material from suppliers I’ve never heard from before because they are trying to find homes for material that historically went to China.”
At brass and bronze ingotmaker California Metal-X (Los Angeles), which buys insulated copper wire, business has been good in the past few months. Increased supply has driven down prices, says President Tim Strelitz. “We get to put metal into our furnaces at a much lower cost,” and CMX has started doing business with more and more new sellers.
But there can be too much of a good thing. “We have had to turn off the spigot—we were getting inundated with metal,” Strelitz says. “It was shocking. All of a sudden, we were heavy in the tooth with metal, but you actually don’t want to be that way. You want just-in-time inventory, and you don’t want to be hedging too much of the material you have.”
Manitoba also has benefited from greater domestic supply and lower prices, Shine says, but that success has had its limits. “On one hand, it’s great on the buy side because the spreads open up,” he says. “You can buy for less, but then [the low price] doesn’t benefit you when you go try and sell [the material]. There’s not a lot of demand in the market, so it’s in [a] flux period. Processors are in a quandary over it.” Consumers are pushing out delivery appointments by as much as a month because supply is outpacing demand, he says. “We’re having trouble moving the material.”
Some types of scrap are moving more quickly than others, Solomon adds. “Domestically, if you take insulated wire and copper chops, there’s probably more chops available than consumer capacity right now,” he says. “Brass mills and other consumers that consume copper chop, their capacity is maxed out. If you talk to a wire chopper, they’d tell you they have more material available than they can get orders into the mills. And our company deals with a lot of these same metals, which creates a frustration as it widens the spreads.”
Time to Upgrade?
Buyers, traders, and processors say they don’t see a near-term domestic market for some of the lower-grade nonferrous metals that once flowed easily into China, such as No. 2 copper, yellow brass, and motors. Items like motors, which in China are taken apart by hand, “have no market in the U.S. unless someone can come up with an inexpensive way to extract the copper that’s not so labor intensive,” Solomon says.
Some processors have discussed buying equipment that will further separate their mixed metals so they can sell purified fractions directly to domestic smelters instead of Chinese buyers. Yet many of these processors are still in wait-and-see mode, the West Coast nonferrous trader says. “You don’t want to invest money into processing equipment, then a few months later, all of a sudden, whatever was banned isn’t banned, and you’re left with a process that isn’t going to compete with” opportunities to sell less-processed material into international markets, he says. “That is keeping the lid on some of that innovation and expansion.”
Even if China doesn’t change its policies, North American processors worry that if they invest in further separation equipment, they’ll be competing with new processing capacity that might come online in countries with lower operating costs. China “only wants to bring in high-value metals, and they want to have the processing happen somewhere else—that ‘somewhere else’ likely being other Southeast Asian countries,” Adler says. “This would probably be Chinese companies opening [facilities] in Southeast Asia to take in the copper wire, the insulated wire, and chop, separate, and send copper to [Chinese] smelters.”
Solomon says his company has looked into shipping to processors in Southeast Asia while also looking for stable markets in North America, but the long-term answer is anyone’s guess. Shine predicts that other countries will step in to “fill China’s void, whether that is India, Malaysia, Singapore, or another country off mainland China.”
Not everyone is delaying big business decisions. Huron Valley Steel Corp. (Trenton, Mich.) processes shredded mixed nonferrous metals (ISRI specification Zorba) at its facilities in Belleville, Mich., and Anniston, Ala. The company announced in March that it plans to build a facility in Alabama to produce secondary products for automotive die casting markets in North America. The company already produces secondary aluminum ingot and sow at its Belleville location, but a new scrap-melting furnace will help boost the company’s annual melt capacity, it says. “We are currently seeing increased availability of Zorba in the domestic market,” says Frank Coleman, HVSC’s vice president of nonferrous sales. “It’s difficult to say whether that’s due to the strong ferrous scrap market here in the U.S. or the Chinese import restrictions. It’s probably both.”
Nonferrous metals “are going to go through a decade of forced change,” Strelitz says, because of China’s changing attitudes about importing the world’s scrap. But that’s not necessarily a bad thing for companies that are willing to find new and innovative markets, he argues. CMX changed its business model as recently as 2008, he points out, when the recession wreaked havoc on even the strongest companies. It started producing a certified lead-free brass ingot used in potable-water applications such as meters, valves, and pipes. “It’s an industry that won’t go away because there’s always a demand for infrastructure components,” Strelitz says. “It’s all about finding the niche.”
Tenacious scrap recyclers already know how to roll with the punches, Strelitz adds. “If we can’t be really
creative about how we process our scrap, then we shouldn’t be in the game.”
Megan Quinn is reporter/writer for Scrap.
Are North American consuming facilities potential markets for the nonferrous scrap that is no longer getting into China? Only if the material meets the needs of their niche, they say.