New legislation and regulations by the Chinese government for the import of scrap materials could be a significant factor in the copper market this year, suggests international metals and minerals consultancy Roskill associate consultant Jonathan Barnes.
China announced plans in April last year to restrict imports of eight scrap categories, including metals such as copper and steel, which will start from July 1 this year. These plans also include a ban on Category 7 scrap imports, which pertain to insulated wiring cable and broken electric motors.
“They don’t want the insulated plastic coverings and the iron and steel that are part of the cable and electric motor. “China just wants the copper rather than the associated waste materials that come along with it,” says Barnes.
China has been allowing imports of only Category 6 copper scrap to date this year. From July, however, quotas and licences for the imports of Category 6 copper scrap material will be introduced.
Barnes states that the extent to which the restrictions and quotas would operate is still unknown, and that it would have notable repercussions for the local and global scrap industry.
“The scrap industry is not able to react fast enough to change its supply chain to be ready for these new restrictions. The industry has relied on China importing all this Category 7 scrap for the past 20 years. It can’t suddenly change its game in a year to be ready.”
While the average copper content of the scrap imports into China has increased year-on-year, the absolute volume of imported copper scrap has decreased significantly, and is further evidenced by the significant reductions in imports in February, adds Barnes.
This reduction, combined with the restrictions on imports from the US as per the 25% tariff, owing to the US-China trade war, is expected to result in even more reduced copper scrap imports in the first half of the year.
“As a result, China would need to replace these scrap units with the imports of more copper concentrates and more refined copper. “That’s what China needs from Africa – not its scrap, but these higher-copper-content raw materials to replace scrap imports that are no longer permitted to be imported into China,” states Barnes.
Since demand for refined copper products in Africa forms a small part of the total demand equation globally, the continent will not need the excessive copper that it mines. The continent will be able to remain a key supplier of mined and refined copper to China.
While the electric vehicles (EVs) industry is set for growth in the coming years, Barnes states that EVs currently still form a small percentage of total vehicles on a global scale, and an even smaller percentage for Africa.
“Even by the early 2020s, we might be looking at only about 5% to 6% of all vehicle registrations being EVs, and Africa is a very small proportion of that total. It’s difficult to see the EVs market being significant for Africa.
We’re only beginning to see supply chains being built now for the components that will need copper,” states Barnes.
While the expanding EV industry is set to place demand on copper in the long term, Barnes argues that there was a deficit in the refined copper market last year. Consequently, he believes that “chances are high” that there will also be a significant deficit this year.
“What’s clear about last year is that we saw a significant reduction in exchange inventories. If you look at the totals of the LME and metals market body Commodity Exchange Inc., or COMEX, there was a drawdown last year,” says Barnes.
He adds that, even with more conservative expectations about demand growth for this year, it is inevitable that the global copper market will be in a deficit.
Africa remains in a challenging situation in terms of copper mining on the continent, owing to the copper price hovering around $2 899/t. Despite the improvement in the copper price from last year, Barnes argues that it has not improved enough for copper miners to be comfortable.
“For Zambia and the Democratic Republic of Congo, governments need tax revenue and have put in place these higher taxation and royalty payments for the miners. It’s creating a difficult environment for them.
The outlook for copper is further clouded by the US-China trade war. I think people will say that’s the main factor preventing the copper price from improving, despite generally favourable aspects elsewhere,” he concludes.