Wittbecker on aluminum: A look at China's new state-owned scrap company

The size of the capital structure and the composition of the owners are telling statements about the importance that Beijing has assigned to this venture.

First, the capital base will enable it to invest in infrastructure to increase scrap usage amongst sectors that have traditionally been heavily driven by virgin ores and metals.

Second, the selection of Baowu, Chalco, and Minmetals puts the leading SOEs in steel, aluminum, and copper/lead/zinc at the forefront of this venture.

Third, CRRG has a vision statement of building a national platform for the use of a range of recycled materials.

China has a long way to go to catch up with the world

Let’s put CRRG’s iron/steel recycling goals into some context. CRRG has set out a goal of consuming 260 million metric tons (mt) of steel/iron scrap. In 2023, China produced about 1.36 billion mt of steel. This would mean that scrap would constitute about 19.1% of steel output. Big numbers for sure, but they do not rival the recycling performance of the United States.

The US Geological Survey estimates that US iron and steel scrap purchases and imports were 62.7 million mt in 2023. US raw steel production was 80.5 million mt, meaning that US steel producers were using 77.9% recycled content. For China to replicate the US performance, they would need to be consuming about 1.05 billion mt.

CRRG did not stake out a goal for aluminum recycling, but we can provide some context there, also.

China has about 14 million mt of installed secondary capacity, with production expected to reach around 11.5 million mt in 2025.

Chinese primary consumption was~44.4 million mt for 2024, met by a combination of domestic output (42.6 million mt) and imports from Russia and other Western sources.

If we combine the primary consumption (which equals supply) with the secondary production, China’s total aluminum consumption from all sources is 55.9 million mt.

This means that secondary aluminum in China comprises about 20.5% of total aluminum. This pales by comparison with world ex-China performance, where products such as 3105 common alloy sheet are 100% scrap. Can sheet has been produced with 100% recycled content and routinely checks in at 70-75%. Extrusions are 60% or better. Hence, the Chinese have a long way to go to catch up with the recycling usage of the world ex-China.

Something must give: Either import more Russian primary or boost recycling use

China has a long-standing cap on its primary aluminum production of 45 million mt, and its demand will outstrip that cap in 2025. If Chinese primary demand grows at a modest 2.5% per annum (about one-half of its GDP target), then primary demand is up 1.1 million mt in 2025 and 2026.

Some would argue that this presents Russia with a natural opportunity to boost its exports to China, particularly given the fact that Russian metal is low carbon and helps China’s decarbonization aspirations. However, China may not deem it politically wise to increase its dependency on Russia and risk the ire of the rest of the world when incorporating Russian metal into products it wants to export.

This is where CRRG starts to come into serious play. China is on the cusp of “harvesting” its first generation of aluminum obsolete scrap from the housing, auto, and transportation boom of the 1990-2010 era. The infrastructure needs to be built to accomplish that.

Another basic issue is creating commercial transparency. When the author was based in China, I always asked, “Why is it so hard to get decent data on scrap supply, movement, transactions?” The answer I got was, “Because the market operates in either gray or black conditions, where ‘fapiaos’ were not commonplace.” A fapiao is a legal invoice or receipt in China that serves as proof of a purchase. The scrap market was, and may still be, a classic example of a cash business operating under the table, outside the view of Beijing.

CRRG will have a big challenge bringing the obsolete grades into the open market, but they clearly have a mandate to do so.

Imports become the bridge until domestic recovery rises: Threat to US, EU & Asian mills

While it’s built infrastructure and changed the commercial culture of the domestic market, CRRG may resort to imports to boost recycling content.

We have already seen China loosen its restrictions on used beverage container scrap (UBC). Historically, UBC has been banned from importation and is being treated as solid waste. That ban is gone and UBC is starting to flow directly to China.

That potentially becomes a big threat to US mills buying UBC from the West Coast. It also threatens to become competition for UBC originating in the Middle East, which historically has been processed in the region or gone to the EU.