The Chinese Scrap Crackdown

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.

3 comments

  1. Adam,
    Another slow pitch thrown out there for me to swing at.

    although a lot of what is really happening will never be fully known, I have a few bits of information that contradicts yours (who is right, I do not know).

    From my perspective, the crack down is not about lower grades of copper scrap being claimed to be lower recovery than they are. It is about full loads of copper scrap being imported into the Guangdong ports and being called mixed metals scrap and then assessed the much lower duty. I think that for the most part, the items that have been being claimed correctly by the importers over time have been the electric motors and shredder pickings as well as the Zorba and Zebra (nonferrous mixed metal scrap from shredding). These are the items that should get back to some sense of normal first in the Southern Chinese ports. Another problem area has been “mixed” loads of scrap where the imported has specifically asked for the high value copper items to be loaded in the front of the container and the lower grad scrap to be loaded in the back. this is a trick the Chinese learned from the Indians. I have never been in favor of this practice, and have often refused to participate in this type of loading practice.

    To me, the material that is under the most scrutiny right now would be anything that is being delivered into a Guangdong port just to be transfered from an overseas container into an overweight truck and then “trucked” 20-30 hours north to the Ningbo/Shanghai area, when this material could have been imported to the Ningbo/Shanghai area in the first place. This practice has been in place for the past 3-4 years and I have continually said it is a “house of cards” and is not a “real” business model that can survive.

    I have said to many over the past few years, including you, that I would welcome the “crack down” on this issue and that it would help Nanhai get back to doing what it does best, which is processing material by sorting it and then melting Aluminum. (I had not idea that the crach down would get this out of hand and cause so much grief).

    One other point would be that I have heard that those that are being “detained” are truly being “detained” and not arrested. Rumor says that they are being held at the offices of the customs at the ports and will be arrested.

  2. Good points, Randy. Thanks for posting them.

    I think you are right-on in suggesting that the crackdown is focused on items that can be profitably imported into Guangdong and sent north to Zhejiang. That’s great analysis, actually.

    You are also right about mixed loads – though I’m hearing that motors are getting are receiving the crack-down treatment, too. Likely, everything is getting combed.

    Anyway, I’m traveling today, but I’ll give you a call shortly –

  3. Our experience was that the inspections(electric motors) occurred at our facility in US, by a CCIC division in US. The inspectors never showed but we did provide eighteen photos per container. Your report states June but our first mention was in April and first inspection in May. The thought was we were singled out for being a steady but not high volume shipper, but we’ve shipped over a thousand containers and only have a 1 percent claim rate per pound(seven claims – legitimate – we had documentation).

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