Capturing low-hanging fruit for carbon neutralisation
We believe increasing the usage of secondary metals could be a key driver for cutting carbon emissions, underpinning China鈥檚 carbon-neutral aspirations, and we expect a large reservoir of scrap metal developing from China鈥檚 strong metal demand period in 2000-08. We have examined the current status of China's recycling systems, the policy backdrop, and modelled the emerging secondary market. We think China's recycling efficiency may grow rapidly despite its four major waste types' current recycling levels lagging developed countries by 30-50ppts. Over the next decade we expect this to change as secondary metals' share of demand rises from 16-27% to 32-41%.
Managing from the source鈥攔egulation should be the key
Though the recycling levels for the four major types of waste in China lag global developed peers by about 30-50ppts, we believe the gap could narrow greatly with the implementation of proper policies. Recent trends suggest more concrete targets are being set and related entities鈥� responsibilities are becoming clearer. At the same time, stricter standards and heftier penalties are set to reduce illegal waste treatment, while financial support should accompany new policies to support key circular projects.
Secondary metals may cut carbon emissions/primary materials consumption
With good scrap-metal adoption, China's steel/aluminium industries' peak carbon emissions should be in 2022E/24E and may decline from these levels by 13%/8% by end-2030E. Meanwhile, we expect scrap steel/secondary aluminium and copper to respectively account for 41%/40% and 32% of overall 2030E metal consumption (versus 22%/27%/16% in 2020).
Miners could lose out as scrap processors/downstream firms set to gain
Aggressive scrap adoption may not only help China to reduce its carbon emissions but could also help reduce its reliance on global miners for primary metals.
