The Misread "Blockade" and the Underestimated "Formalization": The Real Restructuring of the Global Battery Recycling Supply Chain

China is the world's largest demand-side for black mass, with prices fluctuating alongside lithium, cobalt, and nickel salt markets; Southeast Asia provides grey dismantling services at environmental and compliance costs significantly lower than Chinese regulated enterprises; the EU has completed regulatory amendments with black mass hazardous waste classification taking effect in November 2026, and compliance pressure on non-OECD exports is already mounting; China opened compliant black mass imports in August 2025 but with stringent national standard thresholds. These four forces are simultaneously pushing a decade-old grey supply chain toward "forced formalization." But this turning point is not as simple as "grey is blocked, compliance rises" — the compliance channel is open yet prohibitively high-threshold, the grey channel remains under continuous regulatory pressure yet is difficult to eradicate. The gap between reality and regulation will give rise to opportunities in compliance transformation, testing and certification, preprocessing, and cross-border pathway design.

Introduction

Over the past decade, the global lithium battery recycling supply chain has operated along a clear grey chain: end-of-life batteries from Europe and America flow to Southeast Asia under names like "second-hand batteries" or "scrap metal," get dismantled into black mass at extremely low environmental cost, then enter China through grey customs channels declared as "nickel oxide" or "nickel-cobalt mixtures," ultimately refined into lithium carbonate and cobalt sulfate for the battery industry. Black mass prices move in tandem with lithium, cobalt, and nickel salt markets — a mature commodity market heading toward the million-ton scale.

But several policies landing simultaneously in 2025-2026 are rewriting the rules: the EU has completed regulatory amendments (Decision 2025/934) with black mass hazardous waste classification taking effect in November 2026, and compliance pressure on non-OECD exports is already mounting; China opened compliant black mass imports in August 2025 but set stringent national standards; the EU's DIWASS digital notification system became mandatory in May 2026; Chinese customs continue cracking down on grey-channel black mass imports. On the surface, it looks like "grey is blocked, compliance rises." But dig into the industry and you find: the compliance channel is open yet most overseas black mass cannot meet the standards, the grey channel remains under continuous regulatory pressure yet is difficult to eradicate. The gap between reality and regulation reveals the real industry turning point — opportunities in compliance transformation, testing and certification, preprocessing, and cross-border pathway design are emerging.

I. The Turning Point: From "Grey Unimpeded" to "Forced Formalization"

Why did this supply chain run smoothly for a decade? The core was three-stage arbitrage: EU environmental costs are high → waste flows out; Southeast Asia's environmental and compliance costs are significantly lower than Chinese regulated enterprises →承担 dismantling; China has the largest demand and sufficient grey-channel profit space →承担 imports. Each party got what it needed, forming a stable loop.

But in 2025-2026, this underlying rule was broken by three forces simultaneously:

Force One: The EU cuts off supply at the source. The European Commission adopted Decision (EU) 2025/934 on March 5, 2025, incorporating battery black mass into hazardous waste codes, with an application date of November 9, 2026. Compliance pressure on exports to non-OECD countries is already mounting. On May 21, 2026, EU Regulation 2024/1157 entered full application — all cross-border hazardous waste shipments must go through the DIWASS digital system for prior informed consent (PIC), with paper-based procedures invalidated. This means — at the regulatory level — the direct EU → Southeast Asia (non-OECD) battery waste/black mass pathway is being cut off.

Force Two: China sets thresholds at the import end. On June 9, 2025, China's Ministry of Ecology and Environment, jointly with five other ministries, issued Announcement No. 14, effective August 1, allowing compliant import of recycled black mass meeting national standard GB/T 45203-2024, no longer classified as solid waste. But the thresholds are stringent: main element molar ratio 0.95-1.10, zinc ≤0.10%, lead/cadmium/chromium/arsenic each ≤0.01%, 60-mesh sieve residue ≤1.0%. The "water-soluble fluoride content" requirement in particular means most overseas black mass cannot directly comply, requiring secondary defluorination. Effective January 1, 2026, the import provisional tariff was reduced to 3%.

Force Three: Chinese customs plugs leaks at the grey channel end. Customs cases across multiple ports in recent years show continuous seizures of grey-channel black mass imports: public reports indicate Guangzhou Nansha Customs seized 43.1 tons declared as "nickel oxide" but actually black mass; Yantai Customs seized 25.5 tons declared as "cobalt hydrometallurgical intermediate"; Dalian Customs seized 124.57 tons of "nickel-cobalt mixture" imported from South Korea; Guangzhou Customs' Shunde office seized 24.6 tons declared as "cobalt hydrometallurgical intermediate." The common method: declaring black mass as non-waste product names like "nickel oxide" or "nickel-cobalt mixture" to bypass the solid waste import ban.

In one sentence, the competitive focus is shifting: from "who can run the grey chain" to "who can rebuild the supply chain under compliance thresholds." The grey path will not disappear overnight, but its profit space is being systematically compressed by triple compliance pressure (EU export controls, Chinese import standards, Chinese customs enforcement).

II. Changes in the Underlying Logic

How resource allocation is changing. Capital and attention are migrating from "grey channel operations" to "compliance channel construction." The core capability of the past decade was HS code magic, transit laundering, and product name disguise; the core capability of the future is matching national standards, operating DIWASS notifications, and designing cross-border compliance pathways. This migration is not enterprises' active choice but a policy-forced transition — non-compliance means rejection, blacklisting, and two-year import bans.

How business focus is changing. Value is shifting from "grey price arbitrage" to "compliance service fees." In the past, profits came from grey-channel tax avoidance plus environmental cost differences (the gap between Southeast Asian workshops and Chinese regulated enterprises is significant). In the future, profits will come from helping traders formalize, helping overseas suppliers meet Chinese standards, and helping Chinese enterprises navigate cross-border compliance pathways. The essence of this shift: compliance thresholds themselves are the new business barriers.

How market entry is changing. From "personal relationships + grey channels" to "technical standards + compliance architecture." The core of the six-ministry Announcement No. 14 is that recycled black mass feedstock meeting the annex requirements "does not belong to solid waste and can be freely imported," declared under customs code 3824999996 and subject to SN/T 5937-2025 inspection; if suspected to be solid waste, customs may commission professional institutions for属性鉴别. This means the black mass trade, which once relied on connections and grey-channel product names, must now possess national standard matching capability and a complete compliance system. Higher barriers, but behind them lies more stable, more predictable business.

How competitive focus is changing. From "whose grey channel is more stable" to "whose compliance channel is built first." A counterintuitive phenomenon: Chinese hydrometallurgical plants' demand for black mass remains robust, but compliant import volumes are tiny — SMM estimates China's 2025 black mass imports at only about 10,000 tons, far from meeting demand. Severe undersupply of compliant material means whoever builds a compliance channel first captures scarce pricing power over feedstock.

III. Enterprise Challenges and Vulnerabilities

Which enterprises are most vulnerable. First, traders relying on grey-channel imports — continuous customs crackdowns plus DIWASS digital trails mean both legal risk and detection probability are rising; one blacklisting means a two-year import ban. Second, Southeast Asian small workshops — the EU export cutoff plus China's higher compliance thresholds mean dual pressure; workshops incapable of secondary defluorination and unable to meet Chinese national standards will gradually lose their market. Third, enterprises focused only on Southeast Asian grey dismantling without compliant capacity — the "starved" problem will worsen as grey feedstock is blocked.

The most common internal shortcomings. First, "compliance architecture capability" is lacking — most traders still treat compliance as a cost center, not a profit center, and have not invested in advance in standard matching, DIWASS notifications, or cross-border compliance pathways. Second, "quality standard alignment" is weak — overseas black mass entering China must meet GB/T 45203-2024, but most overseas suppliers lack this capability, requiring intermediaries for quality改造. Third, "grey-to-compliant transition" experience is missing — shifting from grey-channel product names ("nickel oxide," "nickel-cobalt mixture") to compliant names ("lithium-ion battery recycled black mass feedstock") requires complete process reengineering, which many traders do not know how to execute.

One judgment: compliance thresholds will amplify capability gaps. China's black mass import formalization is not "blocking grey" but "using compliance thresholds to filter players." Those who pass the threshold gain scarce compliant feedstock pricing power; those who fail are squeezed out. The gap will not open slowly but will erupt集中ly within a single policy cycle.

IV. Future Core Capabilities

The most important capabilities for the next phase include at least the following five:

1. National Standard Matching and Quality改造 Capability — Transforming overseas black mass (mostly failing to meet China's GB/T 45203-2024) into compliant importable feedstock through secondary defluorination and impurity removal. This is currently the scarcest and most profitable capability.
2. DIWASS Compliance Operation Capability — Proficiently operating the EU digital notification system, coordinating approvals from dispatch/transit/destination countries, and controlling PIC cycles. This is not a legal department matter but a business model design capability.
3. OECD-Compliant Transit Layout — Establishing receiving and processing nodes in OECD countries like South Korea and Japan as a possible pathway for compliant EU waste接收. This is not simple overseas investment but compliance architecture design requiring case-by-case verification — only when substantive processing occurs in the OECD country, the nature of the goods transforms, Chinese GB/T 45203-2024 is met, and both exporting and importing countries recognize the material is no longer managed as waste, can a compliant pathway potentially be established.
4. Grey-to-Compliant Transition Services — Helping existing grey-channel traders formalize: supplier qualification audits, quality standard alignment, customs process reengineering, traceability documentation. This is a window-period business, with maximum value when the EU digital passport lands in 2027 and traceability transparency improves, compressing grey space.
5. Cross-Border Resource Integration and Full-Chain Traceability — Connecting the five links of overseas waste sourcing, cross-border transport, local processing, domestic import, and downstream sales into an auditable, traceable compliant supply chain, rather than isolated links.

V. The New Growth Logic

How profit sources are changing. In the past, black mass trade profits came mainly from "grey price arbitrage" (grey-channel tax avoidance + environmental cost differences). In the future, profits will mainly come from "compliance service fees + quality改造 premiums + pathway scarcity." Compliance is not a cost center but a profit center — because compliance itself is a scarce resource, and the few who can achieve it naturally hold pricing power.

Which new entry points are worth pursuing. First, "grey-to-compliant transition" services — helping traders shift from grey product names to compliant ones, earning transition-period service fees. Second, overseas black mass quality改造 — building secondary defluorination facilities in Southeast Asia or South Korea to transform non-compliant black mass into compliant feedstock, earning quality premiums. Third, cross-border compliance pathway design — laying out receiving and processing nodes in OECD countries like South Korea, exploring possible pathways for EU waste to enter China compliantly, but requiring case-by-case verification, earning pathway design fees. Fourth, recycled material trade and traceability — doing compliant trade in finished products like recycled lithium carbonate and recycled cobalt sulfate with attached traceability data, more standardized and less risky than black mass trade.

An underestimated window-period judgment. The EU → South Korea (OECD) → China cross-border compliance pathway may be feasible but requires case-by-case verification, with practical obstacles: the EU tends to retain materials for domestic use, DIWASS notification cycles take months, dedicated receiving facilities in South Korea are lacking, quality standards mismatch at both ends, and economics are affected by lithium, cobalt, and nickel salt price volatility. More critically, if black mass retains its "hazardous waste"属性, transshipment from South Korea (OECD) to China (non-OECD) cannot simply bypass original restrictions through "OECD transit" — only when substantive processing occurs in South Korea, the nature of the goods transforms, Chinese GB/T 45203-2024 is met, and both exporting and importing countries recognize the material is no longer managed as waste, can a compliant pathway potentially be established. This is not a "do it now" business but a 3-5 year positioning opportunity. After the EU digital passport lands in 2027, traceability transparency will improve and grey space will be compressed — at that point, the scarcity of compliant pathways will become apparent. The period from now to 2027 is the last window for compliance layout.

Conclusion

What the global battery recycling supply chain is experiencing is not the simple switch of "grey blocked, compliance rising," but a prolonged reconstruction of "grey forced into formalization." This reconstruction will not complete within a year, but the direction is locked — the EU cutting supply at the source, China setting thresholds at the import end, customs plugging leaks at the grey channel end, and the digital passport improving traceability transparency. Four forces acting simultaneously are forcing the "grey arbitrage" model of the past decade toward its end.

For enterprises, the real gap will manifest in compliance承接 capability, not opportunity recognition capability. Many see the EU's regulatory amendments and China's import new rules, but few can transform overseas black mass into compliant feedstock, navigate DIWASS notifications, or explore case-verified compliance pathways through South Korea. These few enterprises will be the winners of the next five years in global battery recycling trade.