China has been at the centre of all conversation in the waste recycling sector worldwide ever since it started implementing significant changes in the quality control and regulations placed on scrap imports. A nation that has for many decades presented tremendous opportunities for businesses worldwide started to focus on environmental issues a few years back and has been introducing stricter measures to curb or reduce to whatever extent possible the environmental impact caused due to the uncontrolled activities of different industries including the waste recycling sector. Operation Green Fence was the visible start of the country’s serious approach on quality standards of imported scrap materials.

The country has continued to promote a more responsible and environmentally sustainable policy that has also been bringing in tremendous changes in the local and global recycling scenario. Last year, the nation launched the National Sword programme as part of its stringent measures to not only curb illegal ‘waste’ imports from around the globe, but also to ensure that only high quality recyclable materials entered the country. In July 2017, China notified the World Trade Organisation (WTO) that it will stop accepting certain imports of scrap by the end of the year, as part of its National Sword campaign. This development which shook the recycling industry worldwide is also set to reshape the recycling sector.

While recyclers are watching and waiting to see if there would possibly be a softening in stance, they are also looking for new markets for their recyclables. For an industry that has been slowly recovering from the ups and downs caused by various economic and political factors over the past few years, this is yet another hurdle they have to clear. To add to this, in the GCC region, the governments had committed to the introduction Value-added tax (VAT) starting 2018, and GCC leaders agreed to introduce VAT at the standard rate of 5 percent on goods and services. The UAE and Saudi Arabia introduced this system in January 2018. What do all the above developments spell for the Middle East metals recycling industry?

How can recyclers soften the impact of these changes? Will VAT also impact businesses in GCC countries that deal in scrap metals and receive scrap supplies? How has the sector been performing amidst all these fluctuations? “China’s regulatory policies caused disruption in the global supply of the recycling material to China in general as such impractical restrictions are almost impossible to comply with due to the nature of scrap material, says Engr. Salam al Sharif, Chairman, Sharif Metals. The Middle East is no exception; however, since most of what is being shipped out of this region to China is nonferrous metals, it remains challenging to deal with the 1.3% stringent permissible attachment, he notes.

“It remains to be manageable for a limited number of suppliers who can meet such restrictions,” Engr. Salam adds. “New policies from China are affecting all global recycling markets mostly US and European markets as China has been home for such low grade qualities,” says Nasser Aboura, Managing Partner at Aboura Metals. In the Middle East the blow is less severe, he says, as exporters have mostly been shipping higher grades to China such as copper grade 2 birch cliff and brass honey, which are grades that need CCIC inspection approvals for its qualities before being exported. “In general, effects are felt of such measures, but it varies from market to market and items shipped, and how the quality is being controlled,” Aboura notes.

There are two main pressing issues that everybody is working on, says Salman Shaban, Senior Manager, Lucky Star Alloys. The first one is regarding the environmental regulations in China, which includes certain categories of imports that are being regulated. Secondly, within the China framework there is the regulation on clean energy, which targets major local factories that do not meet the new quality standards in terms of systems, energy type, technology, etc., or are using polluting sources of power and so on. These have affected a lot of buyers in China in general, notes Shaban. Another factor that could impact the recycling sector is the introduction of VAT in the region, especially considering that this sector is still not a very organised one and many suppliers are not from a highly professional background.

How the implementation of VAT system will affect the sector overall needs to be seen; but at the individual level, Shaban says, “As Lucky Group, we are well prepared. We have a strong network of lawyers, auditors, consultants and so forth.” The company has a well set ERP system, and they help optimise the suppliers’ performance as well by providing necessary training and managing various aspects such as generating invoices, certifications, etc. They are one step ahead, he says, as they have been preparing for this for quite some time. The major recycling companies are fully regulated and are quite efficient in taking necessary measures with the inclusion of a VAT field in the ERP system as well as invoices for all transactions, etc., to ensure that all aspects are taken care of when they buy and sell raw materials, etc.

Yet, some things are unclear. For instance, when the suppliers bring in the material, they don’t necessarily represent a company, or they could be working on an independent company status where they are collecting material from different sites and delivering them to the recycling facility. It needs to be seen as to how this will be regulated. So there are gaps that will surely be addressed in the long run. On the Outlook for the Middle East Metals recycling sector in the short term, Aboura says the Middle East recycling sector could be less active than usual in Q1 2018, especially after the introduction of VAT in Saudi Arabia and UAE, which had affected local purchases and sales or exports in the industry.

“Despite the current slowdown, in 2018 I see the same robust level of demand as in 2017 for most of the metals as global markets continue their positive movement and growth, which is reflected with higher demand and LME prices,” he states. The outcome for the Middle East framework is quite positive in the short term "since the overall economy is looking positive and most of the GCC countries have come out of their deficits (due to oil prices drop). Commodity prices seem to be holding up for short to medium term, which gives a boost in terms of quantities of nonferrous metal scrap,” says Engr. Salam. But the industry still has to deal with the challenge of VAT, which remains a point of concern until the market stabilises and adapts to the VAT system, he comments