Cold front? Chinese government attempts to control waste flows could cool the importing of copper scrap.

As with most types of metal, robust demand for copper scrap from Chinese buyers has propelled pricing for the material to record levels. This surge in demand has soaked up a tremendous amount of copper scrap throughout the world, including the United States. The record prices have resulted in consternation on the part of many domestic consumers, who find it difficult to compete with China's open-checkbook approach.

Reflecting this anxiousness, the U.S. Commerce Department received a request by a host of copper consumers to restrict the export of scrap copper earlier this year. (The request was turned down.) However, some observers wonder whether China's shifting customs policies could have an impact on the import of copper scrap.

Most industry observers agree that during the long term, copper scrap shipments to China will grow, and quite significantly, too. However, for some scrap exporters, several issues are potential causes for concern in the short term.

LEFT IN THE COLD. Starting Jan. 1, 2005, anyone who is looking to ship scrap material directly to China will need a designated shipping number. Without such a number, container lines have been instructed not to put containers on their vessels.

China's Administration of Quality Supervision Inspection and Quarantine agency (AQSIQ) is overseeing the new customs and inspection numbering system. According to the agency's mandate, companies that do not have a license number issued by the government will be prohibited from shipping recyclable materials to China.

While the mandate appears relatively clear-cut, the actual path that AQSIQ has taken in exercising its mandate has been far from straight. Originally announced more than one year ago, the deadline has been pushed back continually as companies shipping material to China have faced a host of roadblocks and uncertainty about forms, deadlines, requirements and specifications.

Even now, with reportedly slightly more than 2,000 companies worldwide having received their AQSIQ numbers, questions remain about the actual effect of the policy.

Scott Horne, legal counsel with the Institute of Scrap Recycling Industries Inc. (ISRI), Washington, says ISRI has been working with AQSIQ to provide accurate information to recyclers throughout the past year. "We have met with them to clarify their notices," he says.

Horne adds that AQSIQ is not as concerned with the commercial aspects associated with importing, but "with the waste material."

Because of the research by ISRI and other groups, Home says that most people understand the process, though some trepidation remains for those who do not have licenses. However, it is better than a year ago, he says.

Regardless, changes have been made, and some of the larger shippers of copper are taking steps to ensure that they can continue to ship material to China.

Despite China's attempt to bring some type of stability to the recyclables market and to improve the quality specifications, recyclers are still uncertain.

FROZEN IN THEIR TRACKS. Joseph Chen, with Tung Tai's San Jose, Calif., office, says one of the biggest shipping issues right now for exporters is the large backlog of containers at U.S. and Chinese ports.

Tung Tai is a large scrap recycling company with a significant presence in China and the United States. "Container lines have big problems," Chen says. "Lots of containers are tied up in the port."

This is slowing down the shipping process overall, and the flow of copper scrap, as Chen says that China presently consumes around 30 percent of the available scrap copper in the world.

Supporting the notion that the Chinese copper industry is growing, at a recent metals conference in China, Wang Jiwei, secretary general of the Renewable Metals Branch of the China Non-Ferrous Metals Industry Association, said that China's scrap copper usage has more than doubled throughout the past decade. This jump is expected to continue during the next several years, as China, bereft of many of the essential natural resources, continues to suck up a tremendous amount of scrap material.

Other industry reports show that China's import of scrap copper during the first half of last year was more than 10 percent higher than figures for the same period in 2003.

The result of this sharp increase in consumption has been world copper prices that have increased 40 percent during the last year, reaching a 16-year high in October 2004.

Copper users are taking metal out of storage, with analysts expecting demand to exceed production from mines and recycled scrap this year. Consumption will grow 7.7 percent to 16.7 million metric tons, according to a Societe Generale forecast, beating output by 850,000 tons.

Steve Gilbert, president of Global Recycling, a New York state-based scrap exporter, says that many companies are still not that concerned with AQSIQ policies.

"Most vendors don't care, as long as the brokers have license numbers," Gilbert says. "However," he adds, "steamship lines have much larger concerns."

Chen agrees that ship lines have become more concerned with the process, and he says that they are being more cautious. "Without the number, they aren't allowing the containers on their vessels," he says.

However, Chen contradicts Gilbert's position that most processors are not overly concerned with shippers having a license number. "We are seeing a lot of processors willing to sell only to a company with a registered number."

Tung Tai's Chen adds that presently there is a significant congestion problem at Chinese ports (as well as at a number of U.S. ports). Part of this backlog is because customs agents in China are working through the new standards implemented by AQSIQ.

Gilbert says that the lack of a thorough explanation of what the whole program entails has left many steamship lines expressing apprehension on whether or not to accept certain loads out of fear of being stuck with a container that has been rejected.

While exporting companies have a better understanding of the policy, Gilbert says, most processors aren't overly concerned with whether a broker has the license number to ship copper scrap to China.

But steamship lines are extremely concerned with the changing dynamic of AQSIQ. Because steamship lines often carry significant containers of recyclable material, any problem with the shipment once it reaches a Chinese port could result in significant costs to the shipping lines, including charges for storing the containers and redirecting them to another location if the shipment is rejected. At best, rejections could just slow down the overall process, Gilbert says.

Receiving a license from the AQSIQ is one step, but another important step is having material inspected to prove that the material is what has been purchased.

The group that has been slated to conduct the inspections is the China National Import & Export Commodities Inspection Corporation North America (CCIC). This group has locations throughout the world.

Several recyclers say that one of the biggest changes resulting from the implementation of the new AQSIQ policy is the lag time needed to bring in CCIC inspectors to check containers, which may add several additional days to the shipping process.

While using CCIC to inspect containers that are destined for China may delay the shipping process, scrap recyclers in Canada are faced with the dilemma of not having any CCIC offices in their country.

Because scrap recyclers may need to have their shipments inspected before they embark, the lack of a Canadian inspection office poses some significant problems, says Len Shaw with the Canadian Association of Recycling Industries, a Canadian-based association of scrap recycling companies.

Shaw says that while CARI and the Canadian government have been having discussions with Chinese officials about alleviating the situation, offices have yet to be located in Canada.

Shaw points out that the policy as it stands now is a restriction of trade between Canada and China. But he does say it is likely that CCIC will eventually open an office in Canada.

DEMAND REMAINS HOT. Despite the increased difficulty of shipping recyclables to China, demand continues to be very strong.

In fact, Chen, who recently came back from China, says that prices for scrap copper, which have dipped slightly, are expected to remain strong throughout the long term.

While the Chinese government has taken steps to rein in prices, expectations are strong for copper markets throughout the next year. Although the Chinese government is attempting to reduce the amount of speculation in the copper market, the country is not attempting to curtail consumption, though it may be able to slow the growth.

The position that the Chinese government may take could also prove problematic.

"There are rumors that the government might attempt to control prices (for copper scrap)," Chen says.

At the present time, while prices for the scrap raw material have been soaring, it has been much more difficult to push through any price increase for the finished product to compensate for the price disparity. The net result could be some scrap consumers in China might see their production decline from seven days per week to three days per week.

Regardless of the price, many companies shipping scrap material to China say that the copper market should remain fairly robust through next year.

PEACE OFFERING

The Institute of Scrap Recycling Industries Inc. (ISRI), Washington, is calling for greater cooperation with the hard-pressed domestic copper and brass manufacturing industry.

ISRI's announcement that it is seeking a more cooperative relationship with these domestic manufacturers follows on the heels of a recent ruling in which the U.S. Commerce Department rejected a petition filed by the Copper and Brass Fabricators Council, Washington, and the Non-Ferrous Founders' Society, Park Ridge, Ill. The petition sought to have the U.S. Commerce Department impose monitoring and controls with respect to copper scrap and copper-alloy scrap.

ISRI opposed the petition.

"Clearly, the copper and brass industry has an issue with other countries, not with the U.S. scrap recycling industry," Robin Wiener, ISRI executive director, says.

"The problems they face are with foreign governments and not with American businesses. ISRI has been and continues to be interested in assisting the copper and brass industry in addressing any and all documented cases of unfair trade by any foreign country."

Wiener continues, "ISRI would support the copper and brass industry's effort to seek relief under a Section 301, for instance, for any documented instances of unfair practices."

CHINA'S SECONDARY METALS SURGE IN 2004

China's output of secondary metals during the first nine months of 2004 reached 2.6 million tons, accounting for 22 percent of the world's total nonferrous metal output. The scrap metal value totaled around $5.5 billion.

The output of recycled aluminum, copper and lead reached 1.2 million tons, 960,000 tons and 180.000 tons, respectively, according to statistics released by the Secondary Metals Branch of the China Non-Ferrous Metals Industry Association.

During the same period, China recycled 1.1 million tons of nonferrous metals, including 270,000 tons of scrap copper and 520,000 tons of scrap aluminum. Meanwhile, China imported 3.6 million tons of scrap nonferrous metals, including 2.764 million tons of scrap copper, 749,800 tons of scrap aluminum and 52,800 tons of scrap zinc.

The scrap metals were mainly imported by Guangdong, Shanghai, Zhejiang, Jiangsu and Tianjin.

The country's secondary metal enterprises grew in size during this period and made quick progress in technology development.

According to the association, the scrap industry in China is also more aware of the need for environmental protection in relation to its activities.

At present, these enterprises have extended their businesses to cover processing and re-processing. Additionally, the influx of foreign investment has brought in advanced management experience, equipment, technology and operating ideas, which have gone a long way toward technical progress in China's secondary metal industry.

China's output of nonferrous metals is expected to reach 13.8 million tons by the end of 2004, compared to last year's total of 12.28 million tons.

Despite the increase, China's officials report that it is short of such nonferrous metals as copper, aluminum and zinc.

The author is senior and Internet editor of Recycling Today and can be e-mailed at [e-mail].