China: Ferrous scrap imports hit 15- month high in Oct

• Sourcing from non-conventional suppliers spurts, albeit on low base
  
  
• Auto sector rebound fuels scrap demand
  
  
• Further restocking tepid amid production cuts
  
  

Morning Brief: China's ferrous scrap imports stood at 75,143 tonnes (t) in October 2022 compared to 54,006 t in September, a significant increase of 39% m-o-m - which is a 15-month high.

Ferrous scrap import volumes increased as Chinese mills started sourcing from locations like Australia, Thailand and Taiwan, apart from their conventional importing countries like Japan and Korea. This was done, keeping in view the upcoming demand surge ahead of the construction season.

However, imports fell by 27% from January to October this year compared to the same period last year.

Supply trends

• Imports from Japan drop: Chinese mills imported 17,405 t of scrap from Japan in October, significantly down by 64% as against 48,129 t in September. However, imports from this Asian country were up by more than 300% y-o-y as against 3,930 t in the same month last year. As per SteelMint's assessment, Japanese H2 scrap prices to China stood at $388/t CIF in September as against $382/t in August, a rise of $6/t m-o-m. Also, as per market sources, higher domestic consumption in Japan led to lower export volumes.
  
  
• Imports increase from other sourcing locations: The other prominent scrap sourcing countries were Thailand, Australia, and Taiwan, which saw a tremendous m-o-m hike in their scrap supplies to China for the month of October although volumes are very small in actual terms. The countries exported a quantity of 704 t (up by 217%), 520 t (up by 881%) and 491 t (up by 6%) respectively. Favourable prices from these origins lured the buyers.
  
  

Furthermore, the country imported a total of 3,247 t of ferrous scrap from South Korea, a decline of 19% compared to 3,985 t in September.

Why are China's ferrous scrap import volumes increasing?

• Auto sector sees y-o-y growth: China's automobile sector posted a tremendous growth in the past 10 months. The sector's profits amounted to RMB 425 billion ($59 billion), contributing 6.1% of total profits of Chinese industrial enterprises of RMB 6.98 trillion.
  
  

Over January-October, China's automobile manufacturing sector posted the first y-o-y profits this year, with the value increasing by 0.8%, as against the 1.9% y-o-y decline in the first nine months, as per new data released by the country's National Bureau of Statistics (NBS). China's automobile manufacturing sector achieved RMB 7.49 trillion in its business revenue over January-October, up 8% y-o-y, or higher by 1.3 percentage points compared to the first nine months, the NBS data showed.

• Baosteel inks MoU for greener auto steel supply: Baoshan Iron & Steel (Baosteel), the listed arm of the world's top steelmaker, China Baowu Steel Group, has signed a memorandum of understanding (MoU) with Beijing Benz Automotive Co (BBAC) to jointly build a low-carbon and green auto steel supply chain by using greener raw materials for automobile production.
  
  

Baosteel, thus, will become the very first steel producer in China to supply steel with significantly-reduced carbon emissions to automakers from 2023, the company release noted.

• Tangshan to be China's largest steel-scrap recycling base: Under the guidance of the 14 Five-Year Plan (2021-2025) for China's circular economy, Tangshan city, the major steel production base in North China's Hebei province, is to become the country's largest steel scrap recycling base, according to a proposal released by the Tangshan municipal government on November 23.
  
  

Over 2016-2020, Tangshan constructed facilities capable of recycling more than 32 million tonnes per annum (mntpa) of waste and old materials, among which the capacity for ferrous scrap was above 30 mntpa, the implementation plan notes. During the period, the ratio of steel produced using scrap by the city's steelmakers had reached 22.88%.

Challenges in scrap supply to China

• Strict CCIC inspection: China Certification & Inspection Group (CCIC) is an independent third-party certification and inspection organization dedicated to providing inspection, verification, certification and testing services, with accreditation from the General Administration of Quality Supervision, Inspection and Quarantine of the People's Republic of China (AQSIQ). As per market sources, only 8% "attachment" or impurity is allowed in ferrous scrap cargo which is even lower by around 0.3% for stainless steel scrap. Around two years ago, China changed the standard under which "scrap" is called "recycling iron-steel materials" documented in the standard "GB/T 39733-2020".
  
  
• High inspection charges by CCIC: Inspection charges are around $300 per container which is higher by $100 as compared to other countries, a trade source informed SteelMint.
  
  

"It is very tough to pass if the material is not clean. CCIC inspection is very strict and it is not easy to pass it. We are able to supply foundry grade and clear CR cutting scraps to China," said an overseas supplier.

What lies ahead?

At this time of year, when daytime temperatures throughout much of China are falling, steel mills usually consider stocking some raw materials, including ferrous scrap, at their plants for winter consumption. Scrap collecting and processing, which is an outdoor activity, along with the transportation of the same, will be impacted by the cold weather. Moreover, most mills also like to stock up on inventories of scrap ahead of the Chinese New Year (CNY) holidays, which fall around January-February, as most scrap traders will halt business early to enjoy a longer break. In 2023, the official CNY holidays will span January 21-27.

However, Chinese steelmakers, including both blast furnace (BF)- and electric-arc-furnace (EAF)-routes, are showing little inclination so far to stock up for winter operations underscoring the fact that mills may be well-stocked for now and demand may be low going ahead because of the production cuts.