China opens its doors to foreign junk now

Australia’s iron-ore miners could be excused for casting a nervous eye north. With little fanfare, China, the world’s biggest consumer of iron ore, opened its doors to 3,000 tons of Japanese scrap metal. It was the country’s first such import since
it imposed a near-total ban on
“foreign garbage” in 2019. It won’t be the last.
In the short-term, that load of scrap (and others due to arrive in coming months, including from the US) is more symbol than market-mover. But it’s a symbol worth paying attention to. Longer-term, such imports spell trouble for exporters who have long assumed that China will simply continue buying
whatever they dig up. China’s
government is newly determined to reduce its reliance on Australia — or any other country — for raw materials. China began importing scrap metal in the early 1980s. It was cheap (compared to virgin metals that need to be mined) and in high demand among the small manufacturers that would power China’s economic surge over the next few decades.
The port cities of Ningbo and Taizhou built huge car- and motorcycle-part manufacturers largely on aluminum and copper scrap imports. As of the mid-2010s, more than 50% of the paper manufactured in China was produced from imported recycled material.
During the frothiest days of this trade, officials would occasionally voice concerns over how dependent China had become on foreign recyclables. They’d warn that a disruption in the trade could seriously handicap the country’s exporters, and complain that China — the world’s biggest buyer of scrap — didn’t have much control over prices set abroad. Such concerns contributed to the decision to restrict imports in 2019.
China’s steelmakers, meanwhile, were making their own case for self-sufficiency. In 2010, the industry placed stories in state media arguing that the solution to China’s dependence on expensive iron-ore imports was a transition to using scrap. Yet a decade later, China
was still importing 1.2 billion
tons of iron ore a year, roughly
60% of it sourced in Australia. That placed Chinese steelmakers at
the mercy of Australian mining giants and complicated escalating disputes between the two countries’ governments.
While the desire to boost China’s scrap use has only intensified, doing so has proved challenging. Among the biggest obstacles was the government’s ban on imported recyclables, which made it harder to transition to a more sustainable economy while raising raw material costs. The good news is that, after an aggressive lobbying campaign by the steel industry, those restrictions were lifted. Still, it takes time to restart severed trading relationships, and in the short run China’s mills won’t be able to import more than a small fraction of global steel recyclables.
Australia’s miners should worry anyway. China’s latest Five Year Plan envisions boosting domestic scrap supplies from 240 million metric tons in 2019 to 300 million in 2025. That’s already pushing up demand, and Chinese junkyards are scrambling to supply it.

—Bloomberg