SHANGHAI – China is on the cusp of a scrap wave that will return metal from ageing cars and expired fridges to the supply chain in a growing threat to mining companies, according to  Chiho-Tiande Group , a top recycler, which is taking over one of the biggest and oldest names in Europe’s scrap business.

The firm is acquiring Scholz Holding Gmbh, a 144-year-old German company, in a deal that will expand its procurement channels in Europe, and provide the technical expertise to process an expected surge of scrap in China. After 30 years of industrialization, the country’s pool of metal goods will start being recycled in substantial volumes in about two years time, beginning with cars, chief investment officer Goh Kian Guan said in an interview in Shanghai.

“There is so much material in the economy, in buildings, in cars, in fridges, and once these things start to come back to the market, what will happen to the miners?” Goh said last week. “At some point in time this thing will explode and there will not be enough capacity to process all the material. We see that probably coming from 2018 and that’s why we’re positioning ourselves.”

Chiho-Tiande, based in Hong Kong, calls itself the biggest mixed-metal scrap handler in China. Goh said its facility in the east imports and recycles about half the electric motors reprocessed globally. These are worked into batches of copper, steel and aluminum that can again be turned into metal products. The purchase of a European group with 300 locations and revenues of 2.3-billion euros ($2.6-billion) last year is a “revolution” for the firm, according to Goh.

The company hopes that taking over a firm that ships European scrap to China will capture better margins. It’s also buying know-how, Goh said. “A lot of equipment we could buy off the shelf, but you still need to have technical expertise and that exists within the company and its engineers,” he said. Scholz is able to retrieve as much as 97% of metal in cars, he said.

The shares in Hong Kong were unchanged at HK$5.60 on Thursday, and have declined about 3.5% since the company announced its intention to acquire Scholz in early May. The firm will pay 236-million euros for Scholz’s senior debt at a discount, plus a nominal one euro for the equity, Goh said. The transaction will go ahead after a meeting of Chiho’s shareholders before the end of this year. Chiho is 62% owned by USUM Investment Group, a private equity group based in Chongqing, China.

The deal offers Scholz “stability and significant growth opportunities,” CEO Oliver Scholz said in a July 1 statement on its website. “With Chiho-Tiande, we have found a strategic investor whose declared purpose is to become the world’s first fully integrated metal recycler.” Scholz, headquartered in London since the start of this year, referred questions to Chiho-Tiande.

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China’s car pool is growing, with 149-million passenger vehicles sold from the start of 2005 through August, according to the China Automotive Information Network. Purchases were a record 21.1-million last year. New cars bought in richer coastal cities including Shanghai and Beijing tend to be sold second-hand after three to five years, making their way to the interior where they eventually become more valuable as scrap, Goh said.

Recycled metal plays an important role in the global supply chain, competing to some extent with iron ore, copper and other metals mined by companies such as BHP Billiton or Rio Tinto Group. Some 60% of US steel is made from scrap, according to the American Iron & Steel Institute, while about 43% of Europe’s copper use is sourced through recycling, according to the European Copper Institute. Such ratios are far lower in China.

China’s steel scrap supply will be so big in 10 to 20 years that it may have to export the surplus with a “profound impact on the global steel industry, metallics, and bulk raw materials mining,” Chris Asgill, senior consultant at consultancy CRU Group, wrote in a report dated Sept. 22.

Chiho-Tiande’s acquisition of Scholz came after the privately-owned German company battled with debts in the aftermath of the financial crisis. As demand slid and prices slumped, oversupply of mined metal turned consumers off scrap. China’s copper scrap imports fell from a peak of 465 000 metric tons a month in 2007 to about 268 000 tons this year.

Scrap will become more important again for China as global metals oversupply recedes and mine grades decline. Domestically, scrap is starting to emerge in large volumes just as the government tries to tackle environmental issues. “We realized that China is at a crossroads right now,” Goh said. “There is a lot more emphasis on pollution and environmental protection, and those are going to drive industrial policy over the next few years.”