The stakes are high for recyclers shipping into China, with container rejections becoming increasingly common while the nation’s strict enforcement of environmental regulations appears to exceed even the most dire of forecasts.
The rigors of China’s new inspection procedures at the port of destination are starting to come to light, leaving many exporters seriously questioning whether the gamble of getting material into the country is worth the cost of a rejection or if taking a hit on the price to sell to other countries is more stomachable.
Market sources who have witnessed and documented the inspection procedures in China have said that the renewal of the Chinese Certification and Inspection Group (CCIC) North America division for pre-shipment certification is nearly meaningless versus how strictly containers are now being inspected once they arrive into the country.
What to expect
American Metal Market has obtained photographs and eye-witness accounts detailing the inspection process occurring at some ports in northern China.
Customs inspectors dump each container and conduct a visual inspection checking for easily visible large non-metallics or any foreign objects that are not uniform with the majority of the load.
If the shipment passes the visual inspection, a sample of the material is taken and weighed. This sample is then transferred to a perforated basket and sifted in order to remove any dirt or non-metallic objects. Following the sifting process, the dirt and non-metallics are collected and weighed and compared with the total weight of the container to calculate the estimated percentage of waste contaminants.
The percentage is reportedly being strictly held to China’s waste contaminant thresholds, which sets a 1% limit for non-metallic and no greater than 0.01% dirt per container.
In some cases, samples can be sent for lab testing if deemed necessary.
But if China's threshold percentages are exceeded in a shipment, it gets rejected.
“Customs inspectors are being very critical for port inspections at destination. They are opening and unloading all containers and they are truly trying to inspect for the 1% contamination. If they see circuit boards or large pieces of foam or anything that looks like trash, they are rejecting the shipment,” one exporter source said.
Others familiar with the process have reported frustration with the sampling and testing protocols because they have included oxidized metal dust as a contaminant.
“The customs inspectors are also considering the oxidized metal as carried waste. When containers are sealed and on the water for 30 or more days the heat and moisture present oxidizes the aluminum scrap, which forms as a metal dust and falls to the bottom of the container. I don’t know how people are going to get shipments directly into China. We have zero shipments going there now,” a second exporter said.
As the nation sorts through a backlog of containers following the 35-day suspension of the CCIC North America division, rigorous enforcement of carried-waste thresholds by China's local customs officials has led to a string of container rejections ranging from zorba to copper chops, and even limited reports of twitch, according to market sources.
“I heard rejections on zorba shipments, it’s bad. Some suppliers have a lot of downstream capabilities so they are not going to be as exposed as other players. Basically it’s feeling like the end of zorba into China. They don’t seem to need it or they don’t want it. Just like their recycled paper industry has collapsed. Everyone is having trouble,” a third exporter said.
The rigidity with which China is inspecting each container is now even casting some doubt on investments in technology to further clean up material, according to sources.
“Some people think they’ll be able to upgrade zorba to twitch but some twitch has even been rejected because it had plastics. Even No 2 copper chops [have been rejected]. If you look into every load and every shipment, you will find something. I think what China is doing is overkill. They need to get the units, unless they’re willing to go back to 1960s levels of growth,” the second exporter said.
Others in the market shared similar views, noting anecdotally that some Chinese consumers are openly telling their suppliers to divert future shipments due to fears that the material could contain enough trace plastics to be rejected.
China's quest to hit the 1% non-metallic threshold for zorba is being viewed as a red flag for many in the industry, who assert that a 1% maximum carried-waste tolerance could be impossible to achieve. Even the highest-quality loads of zorba typically have a metallic content between 95-96%, they noted.
How seriously the nation will continue these strict enforcement procedures remains worrisomely unknown, according to market participants.
Shifting trade flows and eroding prices
Ferrous and non-ferrous scrap markets both could be stung by the shifting landscape across the global export market due to China’s new stricter stance on scrap imports.
While the market works to obtain a better grasp on the new normal, US exporters are continually diverting shipments of zorba and other non-ferrous scrap products to alternative outlets both at home and abroad.
In fact, during the first fourth months of the year US shipments of aluminium and copper scrap to China (including Hong Kong) have declined by 31,712 short tons (10.4%) and 55,024 tons (20.6%) respectively from the same period last year, according to US Commerce Department data.
But some countries in the region have, for the time being, ramped up their consumption of these products to offset the drop in flows to China.
Malaysia is one nation leading the charge, importing 34,008 tons of aluminium scrap and 17,978 tons of copper scrap from January through April this year versus just 6,414 tons and 203 tons respectively in the same four-month span last year.
India, South Korea, Taiwan, Japan and Thailand have also witnessed considerable growth over this same time period.
But most of the destinations that have ramped up their intake of US scrap trade at a discount to the prices paid in China and can only absorb a fraction of the volumes, according to market sources.
The long-term viability of emerging export destinations also remains somewhat unknown since these countries must now navigate between having the opportunity to take in additional material versus the environmental impact.
“Environmental regulations for new developing markets are not yet set. There is a grey area and this could be bad or good. There are a lot of uncertainties with Southeast Asia, and that’s one thing people really have to understand,” the second exporter said.
Meanwhile, zorba consumers in the US have unanimously reported being inundated with offers to buy material.
In response to the growing availability of zorba, some consumers said they are now actively searching for a new lower-priced equilibrium.
“The volume of zorba offers is increasing and prices are still falling. This week a lot of suppliers are balking at my numbers... We are trying to determine the floor; my guess is that we will settle in the low 50s [cent-per-lb level],” one domestic zorba consumer said.
Some market participants also fear that erosion in domestic zorba prices will drag its derivative non-ferrous auto shred (twitch) down as well. Prices for twitch fell to 67-68 cents per lb on June 21, according to American Metal Market’s latest assessment, a half-cent drop from the previous assessment on June 18 and down 4.5 cents from this year's peak of 71-73 cents per lb on March 29.
With zorba prices showing signs of softness, shredders are also lowering scale prices to preserve margins.
“The big [exporters] on the East Coast have used zorba as an excuse to drop prices. Despite strong sales of [heavy melting scrap] and shred into Turkey, they argue that since they can’t move their zorba, [they] must pay less. The Ohio Valley people mentioned the same thing, that prices would probably drop if they could not move their zorba into China,” a fourth exporter said.
Not all bad
Despite increasing reports of container rejections, exporters have noted that material is still getting into China and that the new pre-shipment inspection procedures in the US that went into effect on June 8, while logistically challenging and costly, have for the most part been smooth.
“I have heard of some rejections in China but we have had about 50 containers inspected since the new certificates have been issued and have not had any issues. We have had 15 inspections in the States with the new policy and had not as much issue as thought. All loads have passed. I believe that large zorba will continue to flow into the large smelters in China,” a fifth exporter said.
Others hope that inspection procedures for ports in southern China will not be as strict as those recorded in northern China.
Some exporters even noted during China’s CCIC North America inspection suspension earlier this month that they were still able to continue shipping into southern China.
“According to China’s environmental thresholds, carried waste - anything other than metal over 1% weight - will be rejected. But southern ports are, most of the time, more lenient than and not as restrictive as the northern ports,” the second exporter said.