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Business life made tougher by trading tensions and policy changes, report highlights

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August 18 2019
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The BIR Nonferrous World Mirror for July highlighted that some of the uncertainty seemed to be gradually dissipating when Beijing finally released two batches of approved copper and aluminium scrap import quotas for the third quarter of this year, even though some of the approvals were released almost two weeks into July. It has been suggested that another batch will be released shortly, with almost a whole month of the third quarter already gone.

The trade war between the USA and China had been stepped down prior to the G20 meeting in Osaka in late June, but it escalated again immediately afterwards. All in all, the world trade growth rate has dropped sharply from 4.7 percent in 2017 to 2.6 percent in 2019, according to World Trade Organisation estimates. The trading tension is spreading not only between the USA and China, but also to other nations, and global PMI on new export orders is below the 50-point breakeven mark at 49.1 percent, as per the report.

All of the uncertainties, such as rising trade tensions and regulatory/policy changes are making the recycling business even harder, the report pointed out. While South East Asian countries are moving to impose tight controls on inbound scrap over contamination fears, to keep hassles to a minimum even though there is no CCIC pre-shipment inspection, it urges members to be cautious about quality according to Basel Convention requirements.

China’s Ministry of Ecology and Environment (MEE) approved scrap import quotas totalling 10.719 million tons in the first 10 batches of 2019 as per the report, which also states that from July 1 this year, eight additional forms of solid waste - including copper scrap and aluminium scrap - were transferred to the catalogue of solid wastes that are restricted to import as a raw material and for which an import licensing system has been implemented.  

In 2018, China imported a total of 22.414 million tons of solid waste, down 47 percent as compared to 2017. The total comprised 17.03 million tons of paper scrap, 2.61 million tons of copper scrap, 1.56 million tons of aluminium scrap and 1.21 million tons of iron and steel scrap, according to China customs data.

Despite the overall downward trend in the country’s scrap imports owing to the ongoing China-US trade war, data show that aluminium scrap imports increased by more than 15 percent month on month in May. Many believe this is due to new import licences and quota pressure. For copper scrap, data reveal that physical import volumes dropped by more than 25 percent year on year in the first five months of 2019 whereas units of copper content actually increased over the same period of time. “This is thanks in part to the Category 7 ban from the beginning of this year which completely changed traditional Chinese scrap imports,” it is explained.

China has announced US$ 3.1 billion of investments in waste separation and treatment. Shanghai is the first test city and, under a new regulation entering force at the beginning of July, household waste is required to be sorted, the report highlights. On the Middle East front, there has been a slowdown in nonferrous volumes considering it is summer, as per the feedback from this region. Now past its halfway point, 2019 is still proving to be one of the most challenging and uncertain years with the first half witnessing continuous LME volatility, driven by a global slowdown and rising tensions from trade conflicts worldwide. In the Middle East, summer heatwave is greatly affecting the flows and supply of metals. Non-ferrous yards have encountered difficulties over recent months with the slowdown in markets and the sourcing of material, alongside a slowdown in global demand for the scrap metals from this region, it is indicated.

The LME has been performing positively since last month’s G20 meetings, thus providing some hope for markets and investors with regard to the trade war between the world’s two biggest economies. Metals have been given a boost since the US and Chinese governments made clear their intention of achieving a resolution and not levying new tariffs, it is pointed out. There is some optimism in the markets following the recent rallies which, hopefully, will be maintained across the second half of the year.

Second-quarter GDP growth is expected to be much lower than for the opening three months of 2019 - with most estimates coming in at around 1.5 percent, or less than half that of the previous quarter in the United States. The US trade deficit grew in June, all in the face of tariffs and continued trade difficulties. Auto sales were down 1.8 percent for the first half of 2019. Increased prices may have dampened demand in the country, as per the report. Again, trade talks are still a constant overhang of the US economy, with a high level of uncertainty on how things and when things will progress.

Secondary scrap aluminium prices have deteriorated significantly over the last three months, it is noted. The main published die cast price has dropped more than 10 percent since April and demand is sporadic, especially during summer season. The LME traded index for that alloy is significantly below the published price, putting downward pressure on pricing. Scrap prices have dropped even more than ingot prices, with most dealers having difficulty with volume sales of secondary aluminium items, the report states. Falls in cast/old sheet have been in line with ingot price declines, but turnings prices are all down more than 15 percent since April. Domestic copper and brass demand remain reasonable, with most ingot makers coming out of their summer maintenance slowdowns in good order, the report states. It remains to be seen what the new import restrictions and licensing will mean for business to China.  

The German economy has been hit by the global slowdown but since July, the dark clouds have gradually started to lift and smelters have been talking about a small bounce-back in their sales prices, it is indicated. Combined with a slow supply of aluminium scrap, prices of secondary scrap stabilised and, partly depending on the individual grade, prospects seem to be looking brighter than before. Owing to the summer season, there has been a general slowdown in scrap supply. For copper, the acquisition of Metallo by the Aurubis group and import licences in China are the main topics for debate, with discussions focusing for example on how much scrap and what copper qualities Germany will export to China, as per the report. Lower treatment charges for copper smelters are putting market participants under pressure. Depending on availability, cathodes are still trading at the same premiums as throughout 2019 to date.

The UK market seems to show signs of improvement it is stated. Copper sales have been helped by an increase in the market. The import licence changes in China are proving challenging and the country’s 3 percent tax on copper granules has had a knock-on effect on VIR prices. The lead market is up, and despite the August holiday period and European shutdowns, the report indicates that there is still an unusual level of interest from end users for this time of year. Despite the market increases, sales are still proving difficult for certain grades of aluminium; for instance, alloy wheels are not reflecting the market gains, with mills still citing a lack of orders.

Stability really seems to be a mirage for domestic non-ferrous metal operators in Italy. The past half-year has been tumultuous and making forecasts is getting difficult as per the report. The holiday climate makes for postponement of definitive decisions until September and trusting in a recovery that is late in arriving. In recent weeks, most operators have been trying to finalise negotiations to close existing contracts, with attention also focused on the signals coming from the market.

According to data published by Istat, Italian exports posted growth of 1.3 percent in May and the trend (+8 percent) is way beyond the most optimistic expectations thanks to intense sales into the EU region. Imports, on the other hand, grew by 0.7 percent on a quarterly basis and by 3.4 percent on a trend basis (compared to the +1 percent recorded in May 2018). According to latest Bankitalia forecasts, inflation calculated from the IPCA harmonised index of consumer prices should fall this year to +0.7 percent from +1.2 percent in 2018, and then touch +0.8 percent and +1 percent respectively in the next two years.