[SMM Analysis] Policy Tightening and Supply Outflow: Malaysia's Copper Scrap Market Trapped in a Downturn Cycle

I. Industry Challenges Under Tightened Policies

The copper scrap market in Malaysia has remained sluggish in recent years, with significant pressure felt across the industry chain, from upstream trading to downstream smelting enterprises. According to SMM, this situation is closely related to the Malaysian government's continuously tightened import control policies since 2021, particularly the high-standard review mechanism implemented by SIRIM (Standard and Industrial Research Institute of Malaysia), which has significantly altered the scrap metal trade landscape in Southeast Asia.

II. SIRIM Standards Raise Import Thresholds

Under the current SIRIM standards (Figure 1), imported copper scrap must meet a minimum copper content of 94.75%, with other metallic impurities not exceeding 5% and other recyclable materials not exceeding 0.25%. Additionally, imports involving controlled electronic waste (SW110) are strictly restricted. SW110 includes electronic components, industrial equipment, and manufacturing scrap that contain or are contaminated by hazardous substances, such as discarded computers, televisions, mobile phones, and electronic manufacturing residues, all classified as controlled electronic waste.

Furthermore, SIRIM imposes strict requirements on radiation thresholds, stipulating that the dose rate at any point on the external packaging must not exceed the "background value + 0.25 µSv/h." Compared to the common standard in many countries of "not exceeding twice the background value," this standard is more stringent. Many industry practitioners believe this threshold is set too low, as background values naturally fluctuate in real-world scenarios. Combined with handheld instrument and environmental errors, compliant batches may be misjudged, leading to increased port costs and return shipment risks for enterprises.

III. Tightened Import Reviews Trigger Trade Diversion and Rising Compliance Risks

While the new import standards enhance Malaysia's environmental image, they also significantly raise import costs and return shipment risks for enterprises. Due to the complexity of the SIRIM inspection system, the entire process typically takes two weeks to complete, resulting in substantial increases in inventory, storage, and port demurrage costs for businesses. This has prompted traders to gradually shift to countries with more lenient policies and higher customs clearance efficiency, such as Thailand, Vietnam, and the UAE.

These countries have actively attracted metal recycling investments in recent years, with relatively relaxed regulations and logistical advantages, gradually establishing themselves as new centers for copper scrap processing and transit. One consequence of this trade diversion is a sharp decline in copper scrap supply in Malaysia, further exacerbating raw material shortages in the market.

At the same time, to maintain profit margins, some traders have begun adopting "circumvention routes," such as transshipping through third-party ports or misdeclaring cargo categories to evade oversight. This phenomenon has also led to the re-entry of illegal imports, false declarations, and uncertified scrap into the market, placing greater enforcement pressure on regulatory authorities. In July of this year, Malaysian customs uncovered a copper scrap smuggling case involving up to 5 million ringgit (approximately 8.4 million yuan) and weighing 125 mt.

IV. Continued Capacity Shrinkage and Cliff-like Decline in Imports

Under the dual pressures of raw material shortages and tightening regulations, many small and medium-sized recycling and smelting enterprises in Malaysia have been forced to implement production cuts, halt operations, or even transition to other businesses, particularly in metal processing hubs such as Selangor, Penang, and Johor. If the current trend of raw material shortages persists, the overall capacity of Malaysia's recycled metal industry may further shrink.

According to data from WITS (World Integrated Trade Solutions), following the full implementation of the SIRIM standards, Malaysia's copper scrap imports plummeted from 318,347 mt (physical) in 2021 to 66,609 mt (physical) in 2022, a decrease of 79% YoY. Import data in the following years remained sluggish, with full-year imports in 2024 amounting to only about 17,000 mt (physical), hitting a five-year low. The sudden tightening of policies directly impacted Malaysia's copper scrap imports.

In H1 2025, copper scrap imports reached 9,533 mt (physical). Despite stringent import standards, some Chinese traders are considering Malaysia as a transshipment hub for re-export trade amid escalating Sino-US trade tensions, with part of the copper scrap expected to be routed through Malaysia to China. Malaysia may see limited recovery in the transshipment segment. SMM forecasts that Malaysia's copper scrap imports in 2025 are expected to rebound slightly to approximately 21,000 mt (physical), up YoY.

V. 2026 Outlook: Structural Weakness May Persist, Limited Short-Term Recovery

From a policy perspective, the government shows no signs of relaxing regulations in the short term. Officials have repeatedly emphasized in 2024 the need to prevent Malaysia from becoming a "regional dumping ground for scrap," indicating a continued stance of strict control. Given Malaysia's clear stance on curbing scrap metal imports, SMM believes the Malaysian government is unlikely to make significant policy adjustments in the near future.

Overall, the Malaysian copper scrap market remains caught between policy suppression and supply constraints. If the government does not adjust import standards or streamline customs procedures, Malaysia risks losing its important position in the Southeast Asian recycled metal market.