SHANGHAI — Sims Metal Management Ltd. will capitalize on China’s scrap generation through its strategic partnership with recycler Chiho-Tiande Group Ltd.
"In addition to being the largest in conventional recycling, we’re 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 Bulletin’s 8th Asia Copper Conference in Shanghai. "It will be different from the West in the sense that it’s going to be much more integrated."
The majority of China’s 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 China’s scrap market is difficult to forecast in precise terms, but as with other facets of the country’s 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, we’ll see some significant development in (China’s domestic scrap generation), and in the next five to 10 years we’ll 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-Tiande—in which Sims holds a stake of up to 20 percent, including warrants and options, and Lion sits on the company’s board—is 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 China’s 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.