China’s great wave of scrap

From Bloomie:

China is on the cusp of a scrap wave that will return metal from ageing cars and expired fridges to the supply chain in a growing threat to mining companies, according to Chiho-Tiande Group Ltd., a top recycler, which is taking over one of the biggest and oldest names in Europe’s scrap business.

The firm is acquiring Scholz Holding Gmbh, 144 year-old German company, in a deal that will expand its procurement channels in Europe, and provide the technical expertise to process an expected surge of scrap in China. After 30 years of industrialization, the country’s pool of metal goods will start being recycled in substantial volumes in about two years time, beginning with cars, Chief Investment Officer Goh Kian Guan said in an interview in Shanghai.

“There is so much material in the economy, in buildings, in cars, in fridges, and once these things start to come back to the market, what will happen to the miners?” Goh said last week. “At some point in time this thing will explode and there will not be enough capacity to process all the material. We see that probably coming from 2018 and that’s why we’re positioning ourselves.”

The company hopes that taking over a firm that ships European scrap to China will capture better margins. It’s also buying know-how, Goh said. “A lot of equipment we could buy off the shelf, but you still need to have technical expertise and that exists within the company and its engineers,” he said. Scholz is able to retrieve as much as 97 percent of metal in cars, he said.

…Scrap will become more important again for China as global metals oversupply recedes and mine grades decline. Domestically, scrap is starting to emerge in large volumes just as the government tries to tackle environmental issues. “We realized that China is at a crossroads right now,” Goh said. “There is a lot more emphasis on pollution and environmental protection, and those are going to drive industrial policy over the next few years.”

I never add the rise of scrap to my forecasts largely as a fail-safe to my bearish outlook but I have seen very credible forecasts of it tripling to satisfy 200mt of Chinese steel demand within a decade. Needless to say, that would knock an huge hole in raw steel production:

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David Llewellyn-Smith
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Comments

  1. Well…

    I guess we’re close to answering the question I posed only the other day….

    > “Remember that this is a non-renewing natural resource owned by the people of WA and Australia.”

    > Absolutely correct, however, unlike coal, at least it is recyclable. That does pose the question of “at what point will we have mined enough that recycling out-competes mining?”

    > Answer that, and you’ll know when the great iron mines cease to exist.

    http://www.macrobusiness.com.au/2016/09/bhp-treats-australia-like-personal-spittoon/

  2. 4 years ago it was illegal to import whole vehicle for scrap into China as there had been a lot of cases of these cars ending up back on the roads after dodgy repairs. Not sure what the rules are today but if they are allowing it, Chiho-Tiande Group Ltd may turn out to be the stock to watch. We visited an Austrian facility that provides some of the best oil/fuel capture and recycling technology that goes along with the whole vehicle recycling system along with a “shredder” in the UK that allows just about every type of metal in a car to be separated cleanly from plastics and other metals. Now throw in the vast array of rusting metal hulks through out China, the masses of old bikes (in the millions) plus old containers, vessels, rebar etc etc, why would anyone be going long on RIO and FMG?????

    • I’d say abandoned bikes in China has to be in the billion+ range. My residential compound just went through and got rid of all bikes that were obviously abandoned. I’ve been here since 04 and I think it is only the second time they’ve done it. I think BJ has probably had a campaign as I;ve noticed a lot of the bridges no longer have heaps of abandoned bikes under them anymore. There are a lot of abandoned cars on the roads of Beijing too.

      I used to teach at JLR and while the second hand car market is not developed, and the endemic lack of trust in Chinese society was given to me as the reason by multiple people, I do know that a lot of people are trying to get that up and running. I wonder if the buyers of those imported cars were aware of what they were buying?

  3. Most developed countries generate/use 30% to 35% scrap. So China moving from 10% scrap to 30% scrap is to be expected. However it would make more sense to use scrap to replace low grade/high cost domestic iron ore rather than high grade/low cost imported ore. Unless China decides to protect its domestic iron ore producers, BHP and RIO being low cost producers will probably be ok.

    As for when recycling will replace mining – recycling time periods for cars/appliances are 10 to 20 years, for ships 20 to 30 years – however in construction (the largest market) the potential recycling time periods are very long – usually 50 to 100 years in buildings and bridges. And if well maintained it can be very much longer – eg no one is talking about replacing the Manhattan Bridge in NYC ( 128 years old) or Sydney Harbour Bridge( 74 years old). So while I see recycling rates in developed countries increasing there is still likely to be an ongoing demand for primary steel production for a very long time.

  4. There is rule of thumb that 70% of steel produced today will be scrap in 10 years. It seems likely that all developed countries will increase their use of scrap in the future. Increasing energy and transport costs, coupled with the growing mountain of scrap, are likely to result in a trend towards smaller EAFs closer to markets. Add in continuing advances in materials technology that reduce the uses of steel and we are likely to see an even higher ratio of scrap to ore.