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: