Scrap Metal Exports Balloon as China Cracks Down on Shoddy Steelmakers

(Beijing) — China’s scrap metal exports have soared in recent months, spurred by an impending deadline to wipe out cheap furnaces that recycle the metal into subpar building supplies.

An unprecedented 15,000 tons of scrap metal exports in the single month of April surpassed ten-fold those of an entire previous average year. The number for May then grew five-fold from April, to a staggering 80,000 tons, according to figures published by the national customs administration.

The boom in exports comes as China’s domestic capacity for processing scrap metal — which comes either as a manufacturing byproduct or from end-of-life steel products and structures — declined because of a nationwide campaign to close substandard steel mills.

The deadline for stamping out these low-grade steel manufacturers has been set for June 30 — though gauging its success will be difficult, due to the number of factories operating in the shadows.

China has tried to curb the outflow of scrap metal — which can be melted and recycled into other products, consuming a fraction of the energy — with a 40% export tax. But that tax has proved powerless in blocking the glut of metal.

Most of China’s scrap steel finds a market in Taiwan, Indonesia or India.

A drive to dismantle the smaller workshop-size furnaces producing shoddy steel — most of which becomes construction material with poor weight-bearing capacity — has been on the nation’s agenda since 2002, when regulators first assessed the hazards in an industry in which quality controls were nearly absent.

The unlicensed producers have been named “Ditiaogang,” or “strip steel,” after the long molds employed in the cooling process.

But the industry crackdown began in earnest late last year, with the nation’s top decision-making body pledging to eliminate inferior and polluting furnaces as part of a campaign to trim overcapacity.

Substandard steel mills operate stealthily and are not included in China’s steel-capacity measurement of 1.13 billion tons, as there is no official data about their production numbers or capacities.

A total of 93 million tons of scrap metal was produced in China in 2016, according to figures from the China Association of Metal Scrap Utilization, an industry group. But a analysis by Caixin shows that the actual figure is closer to 160-170 million tons — and that 30-40% is processed by “ditiaogang” firms.

But the excess capacity in the unsustainable and shady scrap metal industry is likely to be temporary. Earlier this year, the Ministry of Information and Industry published a set of market-access guidelines for the scrap metal recycling industry, and since 2013 has been tentatively selecting qualified furnaces that meet the requirements.

As the sector rebuilds itself in compliance with quality controls, China will again be able to process its own scrap metal. “What we are currently seeing is simply a mismatch between supply and demand. In the future we will see a greater portion of recycled scrap metal in the steel industry,” says Wang Fangjie of the China Association of Metal Scrap Utilization.

The ministry has set a goal for the ratio of scrap metal versus non-recycled metals used in forging iron and steel to reach 30% by 2025, nearly three times the present ratio.

Contact reporter April Ma (fangjingma@caixin.com)