U.S. Scrap, Tariffs, Copper, and the Race to Recycle

23/07/25

LME copper prices pushed higher this week, approaching the $10,000 per ton threshold supported by signs of tightening global supply and a rebound in Chinese demand. However,

market participants remain cautious amid broader macroeconomic uncertainty and the

continued absence of a clear U.S. trade policy framework. Remarks today from Bessent

suggesting a possible deferral of certain tariff deadlines to mid-August have added further

complexity to the outlook.

One of the most striking developments is the collapse in U.S. copper scrap exports to

China, now at a 21-year low. This drop marks a major turning point for the American copper

industry, driven by intensifying geopolitical tension, shifting global trade flows, and the

impending 50 percent copper import tariff under Section 232.

The Recycling Response: Capacity Rising, But Gaps Remain

In 2024, the United States recycled an estimated 870,000 metric tons of copper, up

modestly from 850,000 tons in 2023 and 830,000 tons in 2022. Recycled copper now

accounts for 35 percent of total U.S. supply, compared to 33 percent the year prior. The

majority of this material is consumed by brass mills, rod mills, and alloy producers, with

smaller volumes flowing to smelters, ingot makers, and foundries.

While volumes are rising, the system remains weighted toward primary imports and

offshore processing. High-grade scrap, particularly clean No. 1 and No. 2 copper, has

historically been exported due to insufficient domestic refining and secondary smelting

capacity.

That is now beginning to change. New investment from firms such as Aurubis, Wieland, and

Ames Copper Group is set to deliver more than 280,000 metric tons per year of additional

U.S. recycling capacity. These facilities span blister copper production, rod casting, and

complex scrap recovery, creating an increasingly viable path toward reduced dependence

on imported cathode and concentrate.

Policy Shifts: Strategic Framing Takes Hold

Alongside these private-sector moves, policy is beginning to catch up. Proposals to restrict

high-purity copper scrap exports are gaining traction, and tax incentives for domestic

recycling infrastructure are being considered or expanded. Importantly, copper recycling is

no longer seen simply as a sustainability goal. It is being recast as a strategic industrial

function, critical to electrification, grid reliability, and clean-tech supply chains.

Tariff Tension: Timing Matters

Despite the positive momentum, timing is a serious concern. Implementing a sweeping 50

percent tariff on copper imports before domestic infrastructure has scaled risks

destabilising downstream markets. With limited refining and processing capacity ready to

absorb newly stranded scrap, the result could be sharp price dislocations, increased

volatility, and regional imbalances.

As with the rare earths episode, the United States risks pressuring the market before

building alternatives. Without a synchronized policy and infrastructure strategy, tariffs may

do more to fragment supply chains than to fortify them.

China’s Response: Replacing U.S. Scrap in a Tighter Global Market

The collapse in supply of U.S. copper scrap is forcing a structural rethink within China’s

supply chain. For years, China relied on this flexible, high-grade input to feed its massive

refining and semi-fabrication network. With these flows disrupted, China now faces both an

acute and longer-term sourcing challenge.

Substituting with Imported Cathode and Concentrate

China’s most immediate response will likely be to increase refined copper and concentrate

imports from alternative sources:

• Cathode imports from Africa, Chile, and Southeast Asia are already rising, though

logistics and pricing remain tight.

• Concentrate volumes may grow, particularly from Peru, Kazakhstan, and Mongolia, but

smelter bottlenecks persist due to constrained treatment charges and domestic

overcapacity.

Shifting Toward ASEAN and Belt and Road Partners for Scrap

To fill the scrap void, China is likely to increase imports from:

• Malaysia, Indonesia, and Thailand — key regional recyclers that handle European and

U.S. scrap through transshipment networks.

• Middle East and Africa, where informal scrap collection networks may be formalized

under Chinese-funded processing hubs.

• Eastern Europe and Central Asia, where rising industrial scrap from grid and construction

projects could offer new feedstock.

China’s State Council has encouraged overseas investment in scrap consolidation and

sorting centers to establish secure supply lanes that bypass politically volatile partners like

the United States.

Boosting Domestic Collection and Processing

China is also working to raise domestic scrap recovery by:

• Offering tax incentives for urban recycling programs.

• Launching electrification campaigns to accelerate equipment turnover and increase

scrap availability.

• Investing in AI-driven sorting systems and automated disassembly lines to improve

recovery rates from e-waste and appliances.

However, structural limitations such as fragmented collection systems and the low quality

of much domestic scrap will take time to overcome.

Strategic Implications

• Competition for global scrap will intensify, pushing China further into regions where the

U.S. has limited leverage.

• If the U.S. fails to absorb its own stranded scrap, China could re-import it indirectly

through ASEAN intermediaries, accepting higher costs to retain access.

• China’s rapid use of policy, partnerships, and technology could blunt the intended impact

of U.S. tariffs, leaving American industry with higher prices but little strategic advantage.

Inventory Insight: No Sign Yet of Drawdowns in LME Asian Copper Stocks

Despite growing concern over scrap shortages and shifting global trade flows, recent LME

copper warehouse data paints a divergent picture between Asia and Europe as of July 22,

2025.

In Asia, total LME copper inventories increased by 3,250 metric tons to 96,075 tons. Onwarrant stocks rose by 3,500 tons, indicating greater immediate availability for delivery.

Notably, South Korea and Taiwan accounted for the majority of the build, while Singapore

registered a small 50-ton decline. This suggests that China has not yet begun drawing

heavily from exchange inventories in the region, potentially relying on bonded stocks in

Shanghai Free Trade Zones or alternative flows via Vietnam, Malaysia, and Indonesia. The

full impact of reduced U.S. scrap flows may not be reflected until later in Q3 or early Q4,

especially if Chinese physical premiums rise.

In contrast, Europe saw a net drawdown of 475 tons, with the Netherlands alone accounting for the full withdrawal and no inflows recorded. European LME copper stocks

now total 28,775 tons, with 24,825 tons on-warrant. This suggests an emerging physical

tightness in Europe, possibly driven by increased Chinese offtake via Dutch ports or rising

spot demand amid limited alternative feedstock options.

Together, these trends reflect the complexity of the post-tariff copper market. Asia remains

buffered, for now, through non-LME stockpiles and diversified sourcing routes, while

Europe may be the first to experience structural price pressures and inventory depletion.

China’s strategic pivot may increasingly involve drawing from European metal reserves to

replace high-grade U.S. scrap, particularly if ASEAN alternatives fall short or face capacity

constraints.

COTR Speculative Positioning: Copper Sentiment Turns Bearish Despite Tightening Fundamentals

Latest Commitment of Traders data shows a notable shift in speculative sentiment for

copper on the LME. For the week ending July 18, 2025, net speculative length fell sharply by

6,385 contracts, driven by fresh short positions and ongoing long liquidation. This marked

the third consecutive weekly decline in net length and the lowest speculative commitment

since early June.

Key Developments in Copper Positioning:

• Net Position: Fell from 44,102 to 37,716 contracts week-over-week.

• Longs: Declined to 74,968 contracts from a recent high of 84,622 (Week-2), signaling profit-taking and reduced bullish conviction.

• Shorts: Rose to 37,252 contracts, the highest since May, as traders responded to macro uncertainty and unclear U.S. trade policy implementation.

The final word from our physical copper scrap traders at AMC Group

Operational Viability: Capacity Alone Is Not Enough

New U.S. recycling facilities, while strategically important, face significant operational

challenges. Chief among these is the difficulty of staffing and running them at scale with

sustainable margins. Subsidized electricity may reduce costs slightly, but copper prices

must remain above a viable threshold—likely between $9,000 and $10,000 per metric ton -

to justify full capacity utilisation. The comparison with oil sands is instructive: below $60

per barrel, those projects become uneconomic. Similarly, these copper investments are

highly sensitive to price. A steep downturn in LME copper, particularly during a recession,

could undermine the commercial viability of new refining assets just as they come online.

Market Dislocation Already Evident

The effects of policy uncertainty are already visible. The Comex-LME arbitrage in copper

has widened dramatically, with the spread exceeding $2,500 for September 2025 and rising

to more than $2,800 for May 2026. Such distortions destabilize physical trade flows and

complicate hedging strategies. The resulting volatility weighs on both traders and endusers,

threatening to erode confidence in the very investments the tariffs are intended to

support.

China’s Strategic Pivot is well advanced

China’s realignment away from U.S. scrap is not speculative. Over the past year, Chinese

buyers have discretely locked in long-term contracts across Latin America, securing copper

scrap from major yards for periods of three, six, and twelve months. These agreements

have left little surplus for spot trade, effectively shutting out Western buyers. Grade 1, 2,

and 3 copper are no longer accessible on the open market. China's network now extends

beyond the mainland to Taiwan, South Korea, and affiliated processing hubs, forming an

increasingly closed loop of regional supply. This strategy is not limited to copper. Traders

report similar difficulties sourcing tin concentrates, with Chinese firms now dominating

primary flows. For smaller trading houses and new entrants, the door to bulk concentrate

procurement is closing, underscoring the structural nature of China’s resource

consolidation push.

This article is intended for general information purposes only and reflects the market environment at the time of writing. It does not constitute investment advice, a personal recommendation, or an offer to engage in any trading activity. The content does not take into account individual objectives or circumstances and should not be relied upon as the basis for any investment decision. Past performance is not a reliable indicator of future results.

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