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En garde!

Oct 01, 2017 | 07:00 AM | Fastmarkets AMM staff

So far, there has been little communication out of China regarding what nonferrous commodities might fall under the country’s National Sword policy. The longer the silence, the steeper the concern mounts among aluminum and copper scrap exporters that the sword will swing their way.

China’s National Sword initiative unleashed in February and scheduled for implementation by early next year has spooked the global scrap export community, which fears the proposed policy will result in a glut of scrap export commodities – including paper, plastic, and nonferrous metals – leading to a collapse in prices.

The Institute of Scrap Recycling Industries (ISRI) and the Bureau of International Recycling (BIR) have described China’s move to restrict recycled materials as part of that country’s broader campaign to combat pollution as “devastating” and “catastrophic.”

The goal of National Sword – the English translation of the Chinese idiom describing the country’s campaign to support domestic collection and processing of recyclable materials – is to lift China’s material recovery by more than 100-million tons by 2020. To that end, the Chinese State Council has announced its intention to ban 24 types of imported, solid-waste materials, including unsorted recovered paper and several grades of plastic.

In 2016, China imported 7.3-million tonnes of recycled plastics with a value of $3.7-billion, accounting for about 56-percent of global volume. This Spring, China began inspecting every container entering the country; ports without an x-ray machine were advised to open each container for physical examination.

The country’s Green Fence enforcement campaign, launched in 2013, set strict requirements on the quality of imported scrap materials, particularly for recycled paper and plastics products. Both Green Fence and National Sword are designed to phase out imports that can be substituted for by domestic materials.

The Chinese government counters that the intention of its’ National Sword program is to reduce, if not eliminate, the smuggling of what it calls “foreign waste,” including agricultural products, resource products, tax-related goods, drugs, and weapons. It notes that unprocessed paper, plastic and electronic scrap cause severe pollution due to improper recycling at ill-equipped facilities.

For some, China’s National Sword campaign is analogous to the Trump Administration’s attempts to build a wall along the Mexican border and re-write free-trade agreements. “The idea behind the use of the word ‘sword’ is applied to indicate how China will be toughening up its borders,” Randy Miller, president of Miller Recycling Corp. Mansfield, Massachusetts, comments.

Scrap metal exporters beware?
To date, the Chinese have had little to say about extending the National Sword campaign to scrap metals. For exporters based in the United States, application of the National Sword campaign to ferrous scrap imports would be almost irrelevant.

In 2011, China accounted for 4.2-million tonnes of ferrous scrap shipped from the U.S., one-sixth of all U.S. ferrous scrap exports that year. Last year, China accounted for less than one-twelfth of U.S. scrap exports or about 880,000 tonnes.

When it comes to nonferrous, however, it’s an entirely different story, at least as far as the U.S. is concerned. In 2016, China accounted for just over 70 - percent of the one-million tons of copper scrap exported from this country. That percentage has held remarkably steady for the past eight years, rising to nearly 80-percent in 2011.

The story is similar in the aluminum scrap sector. In 2016, China landed 760,000-tons of aluminum scrap from the U.S., 54-percent of all the aluminum scrap exported off U.S. shores. In 2013, China imported 1.4-million tons of U.S. aluminum scrap, 71-percent of the nearly two-million tons the U.S. exported four years ago. In 2011, when U.S. exports to China peaked, China landed 1.3-million tons of aluminum scrap, 72-percent of the 1.82-million tons the U.S. shipped offshore that year.

So far, however, there has been little communication out of China regarding what nonferrous commodities might fall (literally) under the National Sword. When the Chinese filed a list of 24 waste commodities with the World Trade Organization (WTO) in July, they
cited the following:

•  Plastic waste from living sources
•  Vanadium slag
•  Waste textile materials
•  Slag, dross (other than granulated slag), scale and other waste generated by the manufacture of iron or steel.
•  Ash and residues (other than from the manufacture of iron or steel), containing arsenic, metals or their compounds.
•  Waste, parings and scrap, of plastics.
•  Waste of wool or of fine or coarse animal hair, including yarn waste but excluding garnetted stock.
•  Garnetted stock of wool or of fine or coarse animal hair.
•  Cotton waste (including yarn waste and garnetted stock).
•  Waste (including noils, yarn waste and garnetted stock) of man-made fibers.
•  Used or new rags, scrap twine, cordage, rope and cables and worn out articles of twine, cordage, rope or cables, of textile materials.
•  Other, including unsorted waste and scrap.
•  Cotton waste (including yarn waste and garnetted stock).
•  Waste (including noils, yarn waste and garnetted stock) of man-made fibers.
•  Used or new rags, scrap twine, cordage, rope and cables and worn out articles of twine, cordage, rope or cables, of textile materials.
•  Other, including unsorted waste and scrap.

Although nonferrous metals were not referenced on the list, the fact that China could consider the outright ban of recycled textile and plastic commodities as well as implement major changes to what kinds of paper commodities the country will import have sparked increasing concern among nonferrous exporters as where the future may lead.

Speakers at BIR’s World Recycling Convention & Exhibition in Hong Kong last May said it was possible that the Chinese government would at least study the ban of imports of certain items of mixed metal scrap between now and 2020. Ma Hongchang, BIR’s advisor on China’s policy and regulatory developments, told attendees that Chinese authorities have not yet issued timetables for import bans or details of the categories of scrap to be affected. Ma said, however, that it was his understanding that copper and aluminum scrap are also to be discussed and would then be subjected to a “tough” review to determine whether imports could continue.

Ma is not alone. David Chiao, Uni-All Group executive and president of BIR’s NonFerrous Metals Division, warned of “very severe weather coming towards us.”

Minmetals’ Hong Yang, who represents a company which handles 80,000- to 100,000-tonnes of nonferrous scrap annually, told Conference attendees that China’s domestic supply of copper scrap had now overtaken imports and that this trend could be expected to continue. “Scrap imports are declining all the time,” he said, adding that domestic scrap was expected to increase by 17 percent during 2017 alone.

Devastating impact’
This summer, as the scope of the National Sword initiatives grew more apparent, opposition to widespread Chinese implementation of the new regulations heated up. Recycling organizations in the United States and Europe were particularly critical of the speed at which the initiatives were taking effect.

When China notified the World Trade Organization in mid-July that it intended to ban the import of scrap plastics, mixed paper and slags and drosses, ISRI President Robin Wiener was quick to point out the impact the ban would have on the U.S. economy.

“ISRI has already notified the Office of the United States Trade Representative and the U.S. Department of Commerce on the devastating impact such a ban will have on the global recycling industry, especially because ISRI has heard that China is considering additional notifications in the future on other scrap materials,” Wiener said in a statement issued at the time from her Washington office.

“The scrap recycling industry is the first link in the global manufacturing supply chain,” Wiener emphasized. “Recycled materials are key inputs into the production of new, usable commodities for the use in value-add production.

“In any given year, approximately one-third of the scrap recycled in the United States is prepared for shipment to the export market.” Weiner noted. And China is the recycling industry’s largest customer. This includes more than $1.9 billion in scrap paper (13.2 million tons) and $495 million in scrap plastics (or 1.42 million tons).”

Wiener went on to point out that more than 155,000 direct jobs are supported by the U.S. industry’s export activities, earning an average wage of almost $76,000 and contributing more than $3 billion to federal, state, and local taxes.

“A ban on imports of scrap commodities into China would be catastrophic to the recycling industry,” she warned.

Bureau of International Recycling Director General Arnaud Brunet was in total agreement with his U.S. counterpart. “BIR can only regret the short time frame allowed to stakeholders for submitting comments,” Brunet said from BIR headquarters in Brussels. “It will nevertheless present a submission to WTO.

“Whilst BIR and its members support and promote high-quality standards for scrap exports, this ban, if implemented, will have a serious impact on the global recycling industry which has, in the last 25 years, supported China in its economic development and growth and met its manufacturing needs for secondary raw materials,” Brunet went on to note. “International scrap trade flows to China amount to tens of billions of US Dollars’ worth of goods, which are needed by the domestic Chinese industry for production”

BIR followed up Brunet’s July 18 statement with a formal request to the WTO via the European Union Commission for an extension of the deadline for comments concerning the proposed ban: “As a preliminary comment, BIR would like to stress that the 48-hour deadline for commenting on the notification is extremely short, as compared to the usual 60-day period,” the trade group told the WTO. “As a result, BIR calls for an extension of the delay to meet the standard 60-days period, so that all stakeholders may contribute.”

In August, ISRI took exception to China’s definition of “waste” as part of that country’s attempt to revise its Identification Standards for Solid Wastes General Rules. While supporting the efforts of the Chinese Government to protect the health and welfare of its citizens and the environment, ISRI suggested that the language in the draft Standard be refined to help properly identify scrap materials that are valuable commodities used as raw materials as different and distinct from waste that has no value or use.

“There is a need to distinguish scrap from waste within the Standard, as well as in the underlying regulations and
related notices issued by the Chinese in order to better facilitate the legitimate trade of high-quality scrap commodities and at the same time prevent the improper trade of waste materials” ISRI’s Wiener noted in her comments to the WTO. “Unfortunately, the Standard as drafted uses the term ‘solid waste’ inclusive of both trash and scrap, creating confusion and uncertainty within the U.S. and global recycling industry.”

ISRI urged the Chinese to review the definition of waste as a starting point to more realistic negotiations with exporters. “Simply put, scrap is not waste,” Wiener said. “Waste – often called ‘trash,’ ‘refuse’ or ‘garbage’ – is a material that has no value and is not wanted. Wastes are disposed of because they are no longer useful.  

“In contrast, scrap – often called ‘recyclable material’ or ‘secondary material’ – is a valuable commodity sold in the global marketplace according to industry-wide, globally recognized specifications as a raw material in lieu of virgin materials for manufacturing,” ISRI argued. “Worldwide, more than 800-million metric tons of scrap commodities are consumed each year.”

Not everyone is expecting the worse when it comes to the potential ramifications of the National Sword initiative. Bergmill Supply, a Los Angeles-based broker of paper, plastics, glass, metals and textile scrap, suspects that the initial bans of paper and plastic scrap imports will be less Draconian than initially appears.

The company noted in a recent blog that although the ban will be painful for most U.S. recycling businesses, the future of wastepaper, in particular, will not be as bleak as previously thought. Scrap paper represents a significant portion of U.S. recycled exports to China, which accepted 13.2-million tons worth valued at nearly $1.9-billion last year.

“There are three classes of recovered paper (RCP): old corrugated containers (OCC) account for 60-percent of export volumes, old newspapers (ONP) holds 35-percent, and mixed paper 15-percent,” the company pointed out. “The ban specifically targets unsorted or mixed scrap paper rather than recovered cardboard and newspaper.”


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