Why China is Refusing Scrap Metal & Materials

Over the years the Chinese have been buying and taking all types of commodities from all over the world and they have been accruing worldwide assets along the way. Those assets could be mines, ports, or large investments in overseas companies with a partial or a controlling interest. Why this becomes so important is when you ask the question:

“Why are the Chinese not taking all scrap commodities from paper products to metal products in the volume that they used to do so?”

🇨🇳 Know The Chinese Economic Structure

Now, this is where things start to get interesting (and frustrating) to investors, consumers, and worldwide trading partners. The Chinese have multiple advantages in worldwide trading when you compare them to other nations. They are a communist nation which gives the controlling political party the ability to make decisions for all of their people without votes or large national discussions. They have the ability to own national trading companies that could deal overseas and to keep a large amount of those profits to reinvest in their government from the military to foreign investments. 

Remember Those Tariffs?

When Are You Going To Talk About Copper?

You may be thinking to yourself – why am I reading this and we have not even read or seen the word “copper” pop up yet – do not worry we are getting there! 

In the early 1990s, the Chinese began buying large amounts of commodities such as copper, brass, aluminum, steel, and dozens of other commodities from all over the world. These commodities gave the Chinese the ability to begin to produce large factories and began with their global supply of computer chips, consumer goods, PPE, and even food. Over the next twenty years, the Chinese continued to consume large amounts of raw and recycled materials which led to massive price increases in commodities when compared to the years in the past. This increased demand also led to prices having a massive surge back in the early 2000s with copper prices going from trading levels of $1 per pound to quadrupling over $4.00 per pound.

The Whole World Was Shipping To China

Over that time period, massive amounts of materials were scrapped in the United States (and the rest of the world) and many of those commodities made their way to China either into stockpiles or into their many furnaces and made into ingots – then from there into new products. Over that time period as the Chinese labor costs were very low compared to the United States and other developed countries they were able to accrue massive governmental wealth and many other nations now relied on the Chinese for parts, entire products or different commodities. 

While those countries poured billions of dollars each year into the Chinese economy we then started to see the Chinese buying up all types of ownership stakes in metal mining operations across the world. This led them to be able to rely less and less on other countries’ scrap and to be able to move towards the raw material markets as they owned or had contracts with many mining operations.

🛑 China Stopped Buying Low-Grade Metals…

While many people look at items like insulated copper wire extension cords as great scrap finds, more and more we are seeing that the Chinese will turn these products away from their ports because of the labor-intensive work involved. For so many years they played the slow game on getting all goods imported – and then made so many countries reliant on them for their goods that the ships that were being sent over with cargo boxes of goods were coming back partially empty as multiple materials were not being accepted into China. 

This led to a ban on low-grade copper products back in 2019 and forced many items of lower copper content to find new homes and temporarily led to much lower pricing.

Some of the items that we saw take a hit during the ban were:

Planning Ahead: Before the ban went into effect we saw a large uptick in the materials shipped into China as many companies looked to unload large amounts of lower grade (waste-producing) materials ship out of their warehouse before the ban went into effect.

Now What Happens To The Low-Grade Copper Items?

Once the ban went into effect these lower-grade copper items’ value fell (even more than it already had leading up) and there was a large oversupply created with very few export or domestic markets to sell to. It took many months for new markets to emerge and to be interested in buying these items. Once these markets did start to pop up it then took an extended period of time to get themselves ready both with equipment, labor, and transportation to begin to import these lower grades of copper products. 

This large time gap led to increased US supplies of these low-grade markets and caused a domino effect of frustration from scrappers to scrap yards to traders. All of the people in this group had grown so accustomed to being able to freely move material from one place to another that this became a bit of a shell shock to them.

Scrappers Started Getting Mad 😡

Frustrations popped up such as scrappers accusing scrap yards of low-balling many numbers or trying to take advantage of them. At iScrap, we heard and talked to many people about these struggles and it became very difficult for consumers to break out of these mindsets as new outlets were being set up throughout the world. While things have gotten better since 2019 it was still a difficult and frustrating time for the scrap metal world as low-grade copper items took quite a toll on them. 

Now What?

With new markets popping up all over the world we have seen the reliance on the Chinese to buy lower grades of copper become lessened and from there we have seen other markets producing strong demand. The Chinese may never buy the lower grades of copper again- but what they did do was to create a reliance on their economy to so many nations throughout the world that they changed the scrap commodity landscape forever. 

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