How will the supply and demand of SMM: copper scrap be interpreted in the later stage of the epidemic [SMM Annual meeting]

SMM November 12: at the annual meeting of the 2021SMM non-ferrous metals industry jointly held by the Shanghai Futures Exchange and SMM, Wu Xinyong, a senior copper analyst at SMM, introduced the changes and expectations after the implementation of the policy of importing recycled copper raw materials. Wu Xinyong said that according to SMM estimates, 88 per cent of the six types of scrap copper can meet the new standard for recycled (brass) raw materials, of which 96.53 per cent of red copper and 77.16 per cent of brass can meet the standard. Therefore, the new standard for metal requirements, there is no obvious restriction on the import of scrap copper. After the implementation of the solid waste import management program, the import of waste copper has declined since 2018, and domestic enterprises that dismantle seven types of waste copper have gone to sea ahead of schedule and transferred to Southeast Asia. At the end of 2020, after the introduction of the standard for recycled copper raw materials, the import of recycled copper raw materials rebounded significantly. In order to avoid the improvement of scrap copper import requirements, enterprises will remelt casting ingots and import scrap copper overseas, and the import volume of copper ingots continues to grow from 2018 to 2020.

Zero import of solid waste from 2021

The scrap copper market in China is mainly concentrated in the Yangtze River Delta, Pearl River Delta and Bohai Rim.

Generally speaking, the most developed areas are also the areas with the largest production of copper products. At present, China has formed three key areas of copper scrap disassembly, processing and consumption in the Yangtze River Delta, the Bohai Sea and the Pearl River Delta, and the amount of waste copper recovered in these areas accounts for about 80% of the total domestic waste copper output.

The Yangtze River Delta region is represented by Taizhou and Ningbo in Zhejiang Province, the Pearl River Delta is represented by Guangdong, and the areas around the Bohai Sea are represented by Tianjin, Hebei and Shandong, forming a number of professional markets for scrap copper with large dismantling volume and large trading volume. generally concentrated in the form of industrial parks.

Due to the tightening of the policy of importing scrap copper, the market of scrap copper in coastal areas, which relies on the dismantling of imported seven types of scrap copper, has shrunk obviously, especially in the scrap copper dismantling park in Zhejiang.

The main composition of domestic scrap copper supply

According to SMM data, China will supply about 3.81 million metal tons of scrap copper in 2021, of which domestic about 2.23 million metal tons, imported recycled copper and brass raw materials about 1.32 million metal tons, imported copper ingots about 260000 metal tons.

In 2021, imported recycled copper and imported copper ingots account for about 41.54% of the total supply. 2017-202 is usually between 35% and 45% of the total supply. Domestic scrap copper supply is heavily dependent on imports. Therefore, changes in import policy have a significant impact on supply.

The approval documents for raw materials of recycled copper and brass will no longer be accepted.

The Ministry of Ecology and Environment made it clear that 2020 is the final year for the implementation of zero import of solid waste, and after the standard rules for recycled copper raw materials and recycled brass raw materials can be implemented in November, high-quality scrap copper that meets the standards will be imported in the name of recycled copper / brass raw materials. Starting from 2021, the Ministry of Ecology and Environment will no longer accept the approval of copper scrap and strictly prohibit the import of solid waste.

Recycled copper (brass) raw materials can essentially be understood as six types of scrap copper with higher and cleaner copper content, which have higher requirements for copper content, inclusion and water yield. Recycled copper (brass) has almost no special requirements for enterprises to import qualifications, no longer need approval, enterprises are free to import raw materials that meet the standards.

According to SMM estimates, only from the metal content, 88% of the six types of scrap copper can meet the new standard of recycled (brass) raw materials, of which 96.53% of red copper and 77.16% of brass can meet the standard. Therefore, the new standard for metal requirements, there is no obvious restriction on the import of scrap copper.

After the implementation of the solid waste import management program, the import of waste copper has declined since 2018, and domestic enterprises that dismantle seven types of waste copper have gone to sea ahead of schedule and transferred to Southeast Asia. At the end of 2020, after the introduction of the standard for recycled copper raw materials, the import of recycled copper raw materials rebounded significantly. In order to avoid the improvement of scrap copper import requirements, enterprises will remelt casting ingots and import scrap copper overseas, and the import volume of copper ingots continues to grow from 2018 to 2020.

According to the National Technical Committee for Standardization of Nonferrous Metals, the existing standards for recycled copper raw materials and recycled brass raw materials will be revised, and recycled brass raw materials will be changed to recycled copper alloy raw materials, correspondingly, two subdivisions of bronze and white copper raw materials will be added.

The standard expansion of recycled copper raw materials avoids the embarrassment that only pure copper or copper-zinc alloy can be imported at present, and can better meet the needs of many kinds of copper raw materials in China.

Rapid growth of demand for scrap copper supply and demand has been tight for a long time

Jiangxi's tax policy and month-on-month pressure are relatively small, attracting a large number of waste copper rods and brass bars and other waste enterprises to be put into production or transferred to Jiangxi. It is estimated that the production capacity of China's scrap copper rods will reach 6 million tons in 2021, and copper bar enterprises are expected to reach a production capacity of 3 million tons.

According to SMM estimates, the total domestic scrap copper supply in 2021 is expected to be 3.81 million tons of metal, about 5.3 million tons of physical capacity, even excluding the scrap copper roughing capacity, single processing capacity also far exceeds the scrap copper supply.

For a long time, the domestic scrap copper gap is large, the scrap copper rod production capacity is generally only half, there is often a shortage every year, and it is basically tight for the whole year in 2021, especially in the third quarter.

According to SMM data, as of October 15, the LME coefficient of American brass is 66-68; the LME coefficient of copper meter CIF is 96.5-97.5%, and the LME coefficient of bright copper CIF is 99-99.5%. The price of import CIF is strong, which leads to the upside-down import of some red copper and brass, which suppresses the importer's willingness to import.

The epidemic has led to congestion at overseas ports, higher freight rates, unstable shipping schedules, prolonged import cycles and increased costs. Customs strictly inspects recycled copper / brass raw materials, with a sampling rate of more than 15%, resulting in prolonged customs clearance, increased returns and limited imports.

Due to the many problems faced by scrap copper imports, scrap copper imports decreased significantly in August 2021, to about 129800 tons, down 13% from the previous month, falling for two consecutive months, and scrap copper imports began to weaken. Accordingly, the demand for overseas copper scrap exceeds the supply, which restricts the output of copper ingots, the import volume of copper ingots also decreases compared with the previous month, and the overall supply of scrap copper decreases, resulting in a shortage.

On the other hand, the copper raw material is extremely scarce and the price is high, which leads to the lack of price difference advantage of the scrap copper rod, which obviously suppresses the operating rate. The supply of brass raw materials is also tight, but it is not as tight as purple copper. Some enterprises stop production, but the overall scale is not large, mainly due to weak demand in the off-season.

How does the change of scrap copper policy in Malaysia and EU affect China's imports?

In recent years, China's ban on waste has become increasingly stringent, and many of the low-quality waste originally exported to China has been gradually transferred to Southeast Asia and other countries with a more relaxed policy environment. Domestic recycling and disassembly plants have been transferred overseas to dismantle low-grade waste copper and then import it into China.

Malaysia is politically stable and is located in a key position in the Strait of Malacca. With low transit logistics costs, Malaysia has become a country where domestic enterprises gather together. Malaysia is currently the largest source of scrap copper imports in China, accounting for 17.46% in 2020, or about 167.1 kilotons.

This year, Malaysia plans to tighten the standard of scrap metal allowed to be imported after November, requiring that the content of imported scrap metal should be at least 94.75%, that of solid ferrous metal should not exceed 5.0%, that of non-metallic scrap should not exceed 0.25%, and that of circuit boards or electronic scrap should not exceed 0%.

The strictness of the new standard on the amount of copper metal is similar to that of China's standard for recycled copper raw materials, which means that local recycling enterprises in Malaysia will not be able to introduce seven types of waste copper and some low-grade six types of waste copper, which may affect local waste copper recycling and processing enterprises, such as copper rice factories, copper ingot factories, and so on. However, customs declaration has room for operation, and the expected impact is lower than expected.

According to EU sources: in November, the EU will amend the EU regulations on the transport of solid waste to restrict the export of solid waste, which can be taken as an exception to the export of solid waste to areas that are willing to receive solid waste and have more stringent disposal capacity and do not add additional pollution. The main purpose is to curb the export of waste to third-party countries that do not meet EU environmental standards.

Starting from 2021, China has banned the import of solid waste, and clean copper recycled raw materials can be imported with the code of recycled copper, so there is a disagreement between the policies of the European Union and China. Europe's brass exports have been affected, some overseas suppliers have stopped shipping, and domestic companies have increased wait-and-see sentiment. Suppliers need to apply for local EU certification to export high-quality copper scrap as similar clean recyclable materials rather than solid waste, and the application process takes about 2 months.

Europe accounts for 21.93% of China's scrap copper import trade, 13.16% in North America, 3.53% in Oceania, 1.17% in South America, and only 1.17% in Africa.

If the EU solid waste regulations are amended and passed, the flow of high-quality waste, such as red copper, is expected to be less hindered, while the export of low-grade scrap copper, such as brass, will become more difficult, and at the same time, it will also hinder the global flow of scrap metal, directly or indirectly affecting China's scrap copper imports, but the EU itself does not have such a large scrap metal consumption capacity, and the actual implementation may decline.

How will the supply and demand of scrap copper be interpreted in the later stage of the epidemic?

In order to achieve the dual-carbon goal of carbon peak and carbon neutralization, China is strengthening the construction and utilization of resource recovery system. compared with the growth of domestic waste copper supply, it is easier to expand the utilization scale of waste copper, and the utilization scale continues to be in the expansion stage. the demand for waste copper is only increasing.

As the overseas economy recovers, overseas consumption of scrap copper increases, and policy interference from Southeast Asian countries and the European Union is superimposed. Overseas scrap supply is expected to maintain tight prices, and China's import of recycled copper / brass raw materials is still subject to restrictions.

Therefore, it can be foreseen that in the short and medium term, the tight supply and demand of scrap copper will be the main tone.

"Live broadcast | Prospect of Copper City in 2022 changes and expectations after the implementation of the 14th five-year Plan of Electric Power Planning and double carbon impact on the Import Policy of recycled Copper [Copper Special session of SMM Annual meeting]

The main forum of the annual meeting of SMM

"Click to view live online reports