A worker dismantles a scrapped car at an auto recycling station in Dongying, Shandong province. [Photo by Chen Ning/For China Daily]

China is on the cusp of a scrap wave that will return metal from aging cars and expired fridges to the supply chain in a growing threat to mining companies, according to Chiho-Tiande Group Ltd, 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 percent of metal in cars, he said.

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-percent owned by USUM Investment Group, a private equity group based in Chongqing, China.

BLOOMBERG