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China: Ferrous scrap prices to come under pressure in 2023

Chinese steel scrap prices will probably face downward pressure this year from the predicted fall in finished steel prices and the anticipated slight increase in scrap su...

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13 Jan 2023, 10:38 IST
China: Ferrous scrap prices to come under pressure in 2023

Chinese steel scrap prices will probably face downward pressure this year from the predicted fall in finished steel prices and the anticipated slight increase in scrap supply, according to Mysteel's newly-published forecast for the sector this year. On the other hand, scrap consumption will slide throughout the course of the year, the report suggests.

Domestic ferrous scrap prices have been declining since 2020, and by end-December last year, the average composite steel scrap price for 2022 was at Yuan 3,380.4/tonne ($500.3/t), significantly lower than the 2021 average of Yuan 3,491.6/t, according to Mysteel's database.

During 2023, Chinese steel prices are likely to drop - undermined by the slowing global economy and retreating overseas steel demand - which will unavoidably pressure the domestic scrap prices accordingly, Mysteel predicts.

For 2022, the average domestic price of carbon steel dropped by 15% on year to Yuan 4,600/t, with a further 12% decline predicted for 2023, the annual report showed.

As for China's domestic steel scrap supply this year, though the scrap market's tightness will remain, it may ease in 2023, as the supply volume is likely to grow to 275 million tonnes, up 15 million tonnes from 2022's 260 million tonnes, according to the report.

"The substantial growth in domestic scrap availability is mainly attributed to the anticipated recovery of China's manufacturing industry," the report stated. "(However), for this year's scrap import volume, it is hard to envisage a significant increase due to the widening spread between domestic and overseas scrap prices, the limited availability of permitted imported scrap products, and the rather complicated global situation," it predicted.

Over January-November, China's total imports of ferrous scrap recorded an on-year decrease of 4.8% to reach 501,348 tonnes, according to the country's General Administration of Customs.

In contrast, domestic demand for steel scrap - especially from electric-arc-furnace (EAF) producers - will show signs of softening in 2023, with total scrap consumption for this year expected to approximate 245 million tonnes, lower than the 2022 total of 250 million tonnes, the report stated.

"China's total scrap consumption in 2022 posted an on-year decline of 6.5% compared with that in 2021, as domestic steelmakers have been challenged by their thinning profit margins," it explained.

For example, Mysteel's survey on 40 independent EAF makers across the country showed that by end-December last year, these mills were losing Yuan 56/t on producing rebar, while during the same period in 2021, the EAF makers could enjoy a profit of Yuan 103/t.

The electric furnace mills will continue to endure thinning profit margins in 2023, which may force them to keep capacity utilization low - a strategy that will thin their demand for scrap as well, Mysteel Global noted.

The average capacity utilization rate among the 85 Chinese EAF mills under Mysteel's regular survey averaged just 47.9% in 2022, lower by a huge 18.2 percentage points from the previous year's average of 66.1%.

Written by Lindsey Liu, liulingxian@mysteel.com

This article has been published under an article exchange agreement between Mysteel Global and SteelMint.

 

13 Jan 2023, 10:38 IST

 

 

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