China sets new regulation on automotive scrapping

China has announced a new automotive scrapping regulation to eliminate illegal recycling and dismantling activities and promote an open scrap market from June onwards.

Under the new rule, only state-approved automotive scrapping firms that meet a pre-established environmental standard will be permitted to operate, China's commerce ministry said on 7 May. Recycling and automotive scrapping firms will need to apply for operating licences online and be approved by a central authority before they can continue to trade.

Firms operating without licences will be fined and their assets will be confiscated by the government.

Prices for end-of-life automobiles sent for scrapping will no longer be fixed by the existing pricing mechanism, but will instead be determined by negotiations between sellers and buyers. This could support the development of a liquid market for scrap trading through domestic shredder feed prices.

The new, tougher rules will come into effect on 1 June. The new regulation is part of Beijing's drive to reduce pollution in China and develop the domestic scrap industry to promote a circular economy.

The policy was also implemented to address a health and safety concern caused by the dangers that illegally reassembled automotive vehicles pose to road users.

"The regulating of automotive scrapping activities will prevent scrapped vehicles from being reassembled and driven on the road, ensuring the safety of people's lives and property," the commerce ministry said.

China's shredding capacity still lags behind the more mature economies of Europe and the US, but indications are that the country is looking to rapidly increase its capability.

The Bureau of International Recycling (BIR) Shredder Committee estimated in June 2018 that the number of shredders in China was due to almost treble to around 200 by the end of the year, up from 70 at the end of 2017.

BIR estimated the total global population of shredders at 1,048 in June 2018, including 322 in the US and more than 300 in Europe.

This new policy could be seen as an attempt by China to increase its domestic non-ferrous scrap supply as it continues its crackdown on imports. China is the biggest non-ferrous scrap buyer in the world, but following its imposition of a 1pc impurity threshold on all non-ferrous scrap from 1 March 2018, imports have dropped sharply.

China's aluminium scrap imports plunged by 26.7pc on the year to 1.57mn t in 2018, while copper scrap imports fell by 6.3pc to 2.41mn t.

More restrictions on trade flows to China are expected as new import licence rules come into effect on 1 July.

Increased shredder capacity is essential to replace the shortfall of imported shredded aluminium products such as zorba in particular.

But this capacity expansion must also be accompanied by stringent regulation to ensure that Chinese shredders are producing material of sufficient quality to substitute for the import grades that have been lost.

And the promotion of a more liquid scrap market is probably intended to further lift overall quality of grades traded between Chinese buyers and sellers. Suppliers will be incentivised to produce higher-grade material if they have the capability to achieve higher premiums for doing so on sales through an open bilateral process.

The government will look to implement another policy for electric vehicles, the commerce ministry said.