Viewpoint: Copper scrap export costs to China to rise

China's policy to restrict scrap metal imports has dramatically shifted the global market dynamic and the country's plan to overhaul copper and brass scrap standards is expected to lift export costs in 2020.

China is the world's largest copper and brass scrap buyer, but imports have tumbled since Beijing started imposing restrictions in 2018.

China plans to recategorise high-purity scrap metal as raw material as early as July. The new standards will raise the required copper content in scrap imports and tighten limits for impurities.

And every batch of imports will be inspected and tested for metal content, impurities and recovery rate, increasing the overall cost of selling copper and brass scrap into China.

Many global scrap suppliers have criticised the new standards as overly harsh and impractical. The stringent inspections mean the new rule is likely to cause smaller companies that cannot afford the higher costs to halt sales into China.

"It is going to be very tough if you send 10 containers and they check four... that is going to cost. Everything is possible, it just has a price tag. It is going to put the trade in the hands of a couple of companies, which have the possibility to finance it. For small companies, it is going to be a nightmare," a European scrap buyer said.

But recategorisation is the only way to circumvent China's plan to ban scrap imports by 2020, a Chinese consumer said.

"China's objective is to ban scrap metal imports, [the re-categorisation to higher standards] is a way for survival, it is better than a complete ban," the consumer said.

Until the new scrap standards are implemented next year, the volume of imports will be heavily regulated by the environment ministry through the licensed quota system, which came into effect on 1 July this year.

Under this system, scrap buyers must have licences and imports are approved through quarterly quotas announced by China's solid waste and chemicals management centre, an environment ministry agency.

On 23 December, China issued the first 2020 copper scrap quota — tariff code 7404000090 — at 270,885t for delivery in the first quarter.

The copper scrap import quota for the second half of 2019 was 548,232t, far below the minimum requirement of consumers. China imported 2.41mn t of copper scrap in 2018, customs data show.

As a result, consumers are seeking more African copper cathode to counter the scrap shortage.

Most of the African copper cathode exported to China is non-registered grade-A brand, with smaller volumes of off-grade material. These can replace copper scrap and be fed directly into the furnace without further refining.

Chinese copper consumers rely on a mixture of cathode and scrap as raw material. Many prefer Chilean cathode for its stable quality and have avoided using African material because of its variable quality.

As long as the scrap shortage continues, non-registered African copper cathode is likely to be in high demand in China.

By Yoke Wong