Over the last two weeks rumors and facts have been circulating in regard to a massive Chinese government crackdown on the scrap metal import industry in Southern China. Recently, I’ve received quite a few inquiries from industry players, media (both trade and general), and environmental groups as to what – exactly – is happening. Unfortunately, I am not in South China, so I cannot provide on-the-ground reporting. However, I have been in contact with many people who are directly and indirectly involved with the situation, and – so far as I can reveal information – this is what I know:
[Update: readers of this blog who are not scrap industry players might take note of the fact that scrap is the top US export to China, by volume ... and the United States isn't even the leading exporter of most grades of scrap to China. Japan is. This is a major business story, with serious consequences.]
1. The crackdown began in mid-June and not – as many have suggested – in early July.
2. The crackdown is primarily focused on tax and duty avoidance related to copper scrap imports. In layman’s terms, shipments of low-grade copper (such as cables and electrical motors) often arrive at Chinese ports with fraudulent shipping documents. For example, a load of scrap cables containing 40% copper is incorrectly declared to contain, say, 25% copper. Duties are applied to the copper content, so a reduced percentage of copper means a reduced duty. In even simpler terms: the government wants its money.
3. The investigation is focused on domestic importers AND the foreign representative offices of overseas suppliers of scrap to China’s hungry resource markets.
4. Containers of scrap, and their accompanying documents, are being individually checked at ports throughout China, thus resulting in the largest inspection backlog in industry history. Containers are piled up at ports, awaiting inspection, with few releases.
5. Several of the largest yards in Guangdong are currently idle for lack of material due the container backlog (presumably small and/or downstream yards are also effected).
6. There have been arrests of Chinese importers in Guangdong, at least one of whom is a “significant industry player.”
7. The crackdown is having an effect on the import of aluminum and other non-ferrous scrap items.
Still, much is unknown about this situation, including:
1. Is the crackdown focused on a particular nation’s exports to China? [likely, no]
2. What is the overall effect on the import of e-scrap and other hazardous materials? [quite likely, it is devastating. E-scrap and other hazards tend to be imported by copper processors. But even if e-scrap is not a primary concern of the investigation, it is likely to be caught up in the individual container inspections.]
3. How long will this continue? I don’t know. Ultimately, though, I believe that the answer will depend upon the needs of the down-stream consumers of imported scrap metals. For example, Taizhou’s thriving motorcycle industry is wholly dependent upon the metal produced by its region’s fifteen year-old scrap recycling industry. At what point do industry’s needs trump the needs of the government inspectors?
Insofar as I have reliable, on-record information about this situation, I’ll post it. But I have absolutely no intention of contributing further to the confusion related to this issue.