China Steel Scrap Prices Seen Strengthening in Near Term

Steel scrap prices across China are likely to keep strengthening in the near term, as scrap supply may tighten because of growing difficulties in sourcing and processing scrap when demand from steel mills is firm, market sources agreed on Thursday.

As of May 6, Mysteel's steel scrap price index had edged up by RMB 73.4/MT (USD 10.5/ MT) from late April just prior to the Labour Day holiday to reach RMB 2,369/ MT on delivery and including the 13% VAT, Mysteel's data shows. This was also up RMB 106.6/ MT on month.

"Domestic scrap supply has reached a bottleneck, as growing demand from steel mills has outpaced the volume of scrap arising," a Shanghai-based market source commented.

Consequently, scrap deliveries to steelmakers have decreased amid the supply tightness. As of May 6, average daily deliveries of scrap to 15 steel mills including both blast furnace and electric-arc-furnace producers nationwide under Mysteel's survey had plummeted by 20.5% from before the holiday to just 3,707 MT/day. At the same time, scrap stocks at the 15 sampled mills also declined by 7.3% or 75,800 MT over the same survey period to 957,700 MT.

"Recently, local steelmakers are willing to pay higher prices to secure more scrap. However, we don't want to sell more as our stocks at hand have been running low," a scrap trader in East China's Jiangsu province told Mysteel. "At the same time, considering the upcoming rainy season in East and South China, collecting scrap is becoming more difficult. So now, we're focusing on collecting more scrap - rather than selling - while we wait for higher prices," he added.

However, market sources also warned that scope for further rises in scrap prices will be limited, as steel scrap will be less attractive to steelmakers.

"If scrap prices continue to edge up, the margins of domestic steel mills will be impacted, which in turn could reduce the mills' appetite for scrap and lead them to choose other raw materials such as iron ore to save on production costs," she said.

As of April 30, the price spread between pig iron and steel scrap had expanded to RMB 220/MT, up RMB 50/MT on month. On the other hand, as of May 6 the price spread between rebar and steel scrap had narrowed by RMB 55.7/MT on month to RMB 1,289.5/MT, according to Mysteel's database.