SHANGHAI Sims Metal Management Ltd. will capitalize on Chinas scrap generation through its strategic partnership with recycler Chiho-Tiande Group Ltd.
"In addition to being the largest in conventional recycling, were also the largest in electronic recycling, so we want to be a part of that story in China," Michael Lion, chairman of Sims Metal Management Asia Ltd., said Thursday on the sidelines of AMM sister publication Metal Bulletins 8th Asia Copper Conference in Shanghai. "It will be different from the West in the sense that its going to be much more integrated."
The majority of Chinas scrap demand is currently met by imports, but as the country enters a more mature development phase it will start to close the loop in scrap supply, he said.
The time frame for the evolution of Chinas scrap market is difficult to forecast in precise terms, but as with other facets of the countrys development, it is likely to happen with unexpected rapidity, Lion said. "The only thing I can say with absolute certainty is that China continues to surprise with the rapidity of its development."
Lion said that people are focusing on the idea that there has to be a more sophisticated, selective development of the scrap intake structure to deal with more scrap. "My personal guess is that in the next three to five years, well see some significant development in (Chinas domestic scrap generation), and in the next five to 10 years well see highly significant development from the embryonic stage it is at now," he said.
As more scrap is generated, recycling companies like Chiho-Tiande have the opportunity to become highly sophisticated and vertically integrated, Lion said.
Hong Kong-listed Chiho-Tiandein which Sims holds a stake of up to 20 percent, including warrants and options, and Lion sits on the companys boardis already one of Sims largest customers, particularly for lower grades of scrap. Lion said he expects the company to develop further expertise in handling specialized scrap, such as electronic waste.
The future reconstitution of Chinas domestic recycling sector is likely to have a significant effect on global scrap flows, scrap pricing and possibly trading volumes on futures exchanges.
As large, integrated scrap recyclers emerge, they are likely to do so with a sharper tolerance to risk, and they might start to view yuan-based contracts on the Shanghai Futures Exchange or the London Metal Exchange as an increasingly important hedging tool, Lion said.
Lion has been a vocal supporter of Hong Kong Exchanges & Clearing Ltd.s acquisition of the LME, which is expected to close soon after receiving final approval from the U.K. Financial Services Authority (amm.com, Nov. 29).
A version of this article was first published by AMM sister publication Metal Bulletin.