China: Shagang scrap purchase prices rise $13/t, hit over 4-month high

China's leading electric arc furnace (EAF) steelmaker, the Jiangsu Shagang Group, raised its scrap purchase prices by RMB 80/tonne (t) ($13/t) today compared to prices seen on 7 Jan'22. Notably, this is the second hike in 2022, after a gap of two straight months.

Current prices of HMS (6-10 mm) stand at RMB 3,770/t ($597/t), including 13% VAT, delivered to headquarters.

With this, the company's scrap purchase bids have hit over four-month highs. Similar levels were last seen in end-Oct'21.

Factors behind the price hike:

• China reforms VAT in domestic ferrous scrap policy: China's Ministry of Finance and State Administration of Taxation, in an attempt to further promote sustainable development of the scrap industry, had announced plans to "improvise the Value-Added Tax Policy for Comprehensive Utilization of Resources", from 1 Mar'22.
  
  
• China's billet prices rise: Steel billet prices in China's Tangshan rose by RMB 256/t ($40/t) to RMB 4,647/t ($735/t), inclusive of 13% VAT, on Mar'22 as against RMB 4,391/t ($695/t) on Jan'22. Demand for finished steel (both longs and flats) rose, as per a SteelMint report.
  
  
• SHFE rebar futures gain: According to SteelMint data, China's SHFE rebar futures contract for May'22 delivery closed at RMB 5,094/t ($806/t) on 7 Mar, a sharp rise of RMB 193/t ($31/t) against RMB 4,901/t ($775/t) on 4 Mar'22.
  
  
• China's spot iron ore prices up: Prices of Chinese spot iron ore fines Fe 62% touched $152/t CNF China today, increasing by $20-25/t as against the price seen on Jan'22 on restocking needs, as per data maintained by SteelMint.
  
  

Outlook
At present, the current market scenario is uncertain and prices of raw materials are too high, leading to price hikes in finished products.

Steel mills are mostly adopting a wait-and-watch approach due to the tax adjustment for scrap and adjusting the bidding price according to their own inventory. Scrap prices are expected to fluctuate in the short term.