U.S. Scrap, Tariffs, and the Race to Recycle
LME copper prices remain elevated, close to 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. Recent remarks from Treasury Secretary Bessent suggesting a 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 destabilizing 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 transhipment 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 centres 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 utilization. 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.
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