China seeks more African Cu as scrap shortages worsen

Consumers in China are seeking more African copper cathode to counter the scrap supply shortage in the country as Beijing further tightens import restrictions.

"Everybody in China is looking for African off-grade. It can be thrown directly into the furnace," one Asia-based trader said.

"Less scrap in the market is a factor," another trader said.

Most of the African copper cathodes exported to China are non-registered grade-A brands and in smaller volumes of off-grade material. Chinese consumers have been forced to find alternative feedstocks to meet production needs in the fourth quarter owing to the acute copper scrap supply shortage in the country.

Spot premiums on a cif Shanghai basis for Africa-origin non-registered grade A cathode were traded in a range of $35-40/t, but off-grade materials are sold at a discount to London Metal Exchange copper prices. The level of discount will vary according to the chemical make-up of the copper cathode. Premiums for African copper brands are lower than other origins, with the preferred Chilean registered material often trading at the top market rate.

The Democratic Republic of Congo (DRC) is one of the biggest copper exporters to China but its export data are not available. Switzerland-based trading firm Glencore is one of the largest copper producers in DRC and Chinese producers Zijin, China Molybdenum and Jinchuan also operate smelters there. South Africa and Zambia are major suppliers to China, but production volumes fell in Zambia this year because of hikes to mining royalties.

Chinese copper consumers rely on a mixture of cathode and scrap as raw material. Many buyers prefer Chilean cathode brands for their stable quality and would avoid using Africa-origin material in the past because of quality fluctuations.

But with better technology, power supply stability and more efficient quality control in copper smelters in Africa, that production quality has improved. The volume of off-grade material being produced has reduced significantly.

"The amount of off-grade [copper] traded is minuscule. People do not produce off-grade intentionally, you produce it accidentally," a trader said.

There are also increased risks using non-registered copper cathode or off-grade material as banks only accept exchange-registered metal brands as collateral for financing agreements.

Following the import restrictions imposed by the Chinese environmental ministry, which regulate scrap metal imports through a licensed quarterly quota system that started on 1 July this year, scrap imports to China have dwindled.

Under the regulations, all importers must have licences in order to import scrap metal and the volume will be approved by China's Solid Waste and Chemicals Management Center, an environment ministry agency. Copper scrap import volumes have further plummeted under this quota system.

The total of all copper scrap import quotas approved for the second half of this year is 548,232t, far below the requirement of copper buyers in China. China imported 2.41mn t of scrap last year, China custom data show.

China will announce its new scrap metal reclassification as raw material early next year, with implementation expected in the second half of next year.

Under the new policy, scrap metal that meets the strict requirement will not face any import restrictions, which could ease the supply tightness in China. But some believe the increased usage of African copper cathode in China could be a permanent trend as buyers seek ways to maximise margins.

"If the scrap becomes a lot more available again, African cathode will still be the cheapest material. It will have a knock-on impact on off-grade African cathode, but not much. It might reduce premiums a little, but I do not see it going back to where it was. Europe was like that years ago. China was moving towards that," a trader said.

By Yoke Wong