Many people have asked us about many of the reasons that the Chinese markets are tightening up on the scrap markets and imports to the country. If that was an easy one sentence answer this would make for a boring post, but it is way more complex then just this blog will be- but let’s try to list some of the main reasons.
Refusing to Buy Low-Grade Items
For years the Chinese wanted any and all scrap that they could get their hands on. We are not even talking about just metals either, we are talking about plastics, glass, paper, cardboard, electronics (yes we know that there are metals…not the point), and styrofoam. All of these were highly imported and we have not even mentioned the metals that they were taking in at the time.
Due to China’s desires for more metals, they were willing to overspend and drive the scrap commodities markets up to ensure that they would get the materials into the county.
For a 20-30 year window, they took advantage of their relatively low labor rate and lack of benefits for their workforce.
This allowed them to be able to get a lot of exports going and to be able to sell items to the world at a relatively cheaper rate. That caused a massive influx of money into the country and helped to create the Chinese superpower that we see today.
The low-grade materials that were going in were really tough to sell elsewhere in the world because the labor rates were at closer levels to that of the US, and when the Chinese put the stop to low-grade imports the global pricing took a major hit.
Money = Power
With the growth of the Chinese in the world metals and commodities markets going into swing, they were able to accrue a massive amount of money. With many reports out there based on the last 20 years of data saying that the Chinese wealth could surpass the US wealth by 2030 (or around then depending on which report you read), the Chinese will go into a power position that will allow it to tell the world what kind and how much of materials they want to take in.
Will They Determine Prices?
Having all of the economic power and the avenues already in place to get rid of so many metals and other recyclables will make it very difficult for the world to tell China what the prices are – we may see the Chinese telling the world how pricing options will happen and when they will.
These are all speculations as so many factors from depressions, recessions, wars, and so many bad unknown factors could help shape the world commodities markets, but we still want to touch on as many as we can.
As the Chinese wealth and power grew in the 1990’s and 2000’s, we saw a lot of Chinese investors take their money and wealth to other countries. With the Chinese having major stakes in oil companies, metal mining operations, special metal manufacturing, clothing, real estate (and the list goes on), it has been tough to put a finger on what they are going to do next.
They have reached their hands out into so many industries, sectors, countries, foreign investments and even have begun to bring most of their country out of the poverty line with higher wages and better opportunities. The Chinese may be the next model of economic prosperity and that will strongly affect the metals markets.
As copper has often been called “Dr. Copper,” and has been touted as one of the major economic factors, we may see a whole new horizon to world commodities markets. The Chinese and other countries have continued to invest in large mining operations as well as larger furnaces and mills to process recycled materials to help cut down on costs.
Recommended: Learning About Tariff’s Effects on Scrap Metal
One thing that you may have heard over the last few years is about the intellectual theft that the Chinese have been widely accused of. This has led to the advancement of Chinese technology firms in the world, while the Chinese have largely kept other tech companies out of the country. The Chinese are a Communist country and that has allowed them to keep newer outside companies out while growing their own brands to serve their people.
Look at Google and Facebook as two of the major companies who are not allowed to operate in China and make money inside of the country. Again, this might not have to do specifically with metals, but this shows why some of the tariffs went into effect on goods to help create a more fair playing advantage for US companies looking to operate in the Chinese markets.
- Learning About Tariff’s Effects on Scrap Metal
- Why Do Scrap Prices Change?
- Factors That Determine Scrap Prices