China: Shagang hikes scrap purchase bids to boost supplies, prices hit over 2-month high

China's leading electric arc furnace (EAF) steelmaker, Jiangsu Shagang Group, raised its scrap purchase prices by RMB 100/tonne (t) ($16/t) on 07 Jan'22. Notably, this is the first hike in Jan'22. Current prices of HMS (6-10 mm) stand at RMB 3,690/t ($579/t), including 13% VAT, delivered to headquarters.

With this, the company's scrap purchase bids have hit over two-months high. The similar levels were last seen in end-Oct'21.

Factors behind the price hike -

• Seasonal factors: Tight supplies amid winters pushed mills to raise bids to attract more scrap deliveries.
  
  
• China's billet prices rise: Steel billet prices in China's Tangshan rose by RMB 30/t ($5/t) to RMB 4,320/t ($677/t), inclusive of 13% VAT, on 6 Jan'22 as against RMB 4,290/t ($673/t) on end-Dec (27 Dec'21). Rising rebar futures prices led to an increase in steel billets prices in the country.
  
  

• SHFE rebar futures gain: According to SteelMint data, China's SHFE rebar futures contract for May'22 delivery closed at RMB 4,494/t ($705/t) on 6 Jan '22, a rise of RMB 19/t ($3/t) against RMB 4,475/t ($702/t) on 20 Dec'21.
  
  
• China's spot iron ore prices up: Prices of Chinese spot iron ore fines Fe 62% closed at $128/t CNF China on 6 Jan'22, increasing by $10/t as against the price seen on end-Dec (29 Dec'21), on restocking needs, as per data maintained by SteelMint.
  
  

Outlook

At present, prices of raw materials are too high, hence, profits of Chinese steel enterprises are low. Any significant rise in scrap prices is unlikely before the Chinese New Year holidays (coming up in February). However, it is expected that prices will fluctuate in the short term.