Malaysia deals another blow to global copper scrap trade: Andy Home


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LONDON – Further disruption is looming in the global copper scrap market.

This time it is Malaysia threatening to stop imports of substandard recyclable materials.

The country has become a major copper and aluminum recycling center, processing and recovering waste in a form that can be imported into China.

China has banned imports of complex materials such as insulated copper wire and shredded engine waste since 2019. It was going to ban all imports of scrap this year, but was persuaded by its domestic copper industry that it was unwise to eliminate such a large source of raw material.

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New trade codes and a reclassification of high-grade scrap copper and brass as “recyclable raw materials” have allowed China’s scrap copper imports to rebound strongly this year.

However, the biggest supplier is Malaysia, which is now moving down the same path China has taken by proposing strict new rules on what type of scrap it will allow importation.

ZERO TOLERANCE

Malaysia’s new import purity thresholds are expected to come into effect at the end of this month.

The Malaysian Non-Ferrous Metals Association (MNMA) has warned that the current proposals risk killing the country’s growing dismantling and scrap processing industry.

The proposed guidelines, published by the state standards agency SIRIM, would represent some of the strictest purity rules in the world. They stipulate not only a minimum metal content of 94.75% but also zero impurities, including copper dust which is formed naturally by oxidation.

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Even China has not tried zero tolerance. Its 1% impurity threshold was controversial enough when it was first proposed.

Indonesia, which has also tightened its scrap import standards, dropped a proposed 0.5% impurity threshold and settled for 2% after the concerted rollback of international recycling organizations such as the ISRI and BIR.

Malaysia’s minimum purity level is also higher than that now allowed by China for brass imports.

Taken together, the standards proposed by SIRIM risk stopping imports of all copper scrap, except the purest. Even if they are watered down, it is difficult to see how they will not have a negative impact on the flow of the same material that Malaysia has specialized in processing.

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This in turn has consequences for China, which has become dependent on Malaysia as a key supplier of premium recyclable copper.

BEST SUPPLIER

Malaysia was China’s ninth-largest supplier of scrap copper in 2017, when Beijing first revealed its intention to phase out imports of what it classified as “solid waste.”

Malaysian imports that year amounted to 154,000 tonnes with an implied low copper content of around 30-35%.

China’s ban on substandard scrap in early 2019 saw Malaysian imports explode to 267,000 tonnes with an implied 85-90% grade that year.

The transformation was due to the partial relocation of China’s national dismantling and processing capacity.

Malaysia has since been the largest supplier of scrap copper to China. Shipments of 172,000 tonnes last year accounted for nearly a fifth of China’s total imports.

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Flows accelerated further this year, up 73% to 178,000 tonnes in January-July, as part of a wider recovery of 92% in total imports of scrap copper.

It is no coincidence that this scrap metal surge is occurring just as China’s appetite for refined copper is waning. While a shortage of imported scrap exacerbated the strain on the domestic supply chain last year, markedly improved scrap flows this year are reducing demand for refined copper.

This may not last, however, if Malaysia closes the door on its own scrap imports.

RECYCLING CHALLENGE

Recycling, everyone agrees, will be a cornerstone of the green economy. It is both inherently green in itself – remelting copper uses much less carbon than extracting it from the ground – and essential for increasing the supply of metals needed for decarbonization.

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But it’s clear that China has unleashed a domino effect of individual countries unilaterally deciding to design their own standards on what kind of scrap resource they are willing to import and process.

No one wants to be the dumping ground for the rest of the world, but as Malaysia has shown over the past three years, one man’s scrap metal can be another man’s fortune, especially if it contains copper.

It is possible that other countries could fill the void Malaysia has left, but the tightening of restrictions on trade in recyclable products is a phenomenon that is rapidly spreading.

Vietnam, for example, added 13 more items to its list of banned scrap metal imports earlier this year, including several exotic metals such as tungsten and molybdenum.

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As more countries restrict trade in end-of-life waste, especially lower quality and more complex materials, the goal of achieving higher global recycling rates becomes increasingly difficult.

A lot of copper has already returned to the ground in the form of landfill.

Of the 650 million tonnes extracted between 1910 and 2010, 350 million tonnes are still used but 140 million tonnes were lost in landfills, according to the Fraunhofer Institute. (“The Promise and Limits of Urban Mining”, November 2020).

The world has become more efficient at handling end-of-life products, but to do so, it has relied on globalized trade. The United States and Europe in particular have made a habit of sending large amounts of substandard materials to China first and then to other Asian countries like Malaysia for recycling.

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Neither currently has the capacity to process such material. The last secondary refinery in the United States closed at the turn of the century and although investment is pouring in new secondary copper capacity, it is doing so at the direct smelting stage.

This requires top quality scrap metal, not the one that has always been shipped to China for the more complicated activities of dismantling, removing contaminants, processing plastic packaging and refining it into a new metal.

It should be noted that US exports of scrap copper fell sharply during the 2018-2020 period as China – the previous top destination – steadily tightened its purity thresholds. Indeed, last year’s count of 771,000 tonnes was the lowest since 2005.

Compared with 2017, the last year of normal trade with China, exports of scrap copper have fallen by 450,000 tonnes in the past three years.

This material may have been in storage, but it may also have gone to landfill for lack of a better alternative, proof that transnational shipping is still a fundamental requirement for an efficient recycling chain.

Malaysia’s proposed crackdown on recyclable metals is not only a potential blow to a supply chain of scrap copper being recovered, but also to the global urban copper mine.

(Edited by Elaine Hardcastle)

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In-depth reporting on The Logic’s innovation economy, presented in partnership with the Financial Post.

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