China's ferrous scrap consumption stable in 2022, but seen rising to meet decarb goals

• Lower crude steel output, high energy prices impact scrap usage
  
  
• Covid surge hits scrap generation
  
  
• EAF adoption likely to rise to over 30% by 2030
  
  

Morning Brief: The share of ferrous scrap in China's crude steel production is expected to remain more or less stable y-o-y in 2022 at 225 million tonnes (mnt) as against 226 mnt in the year before, as per data maintained with SteelMint.

The ratio of ferrous scrap in China's crude steel consumption is also expected to remain range-bound, dipping negligibly on a y-o-y basis from 21.90% in 2021 to 21.80% in 2022, the data shows. In fact, this ratio has remained range-bound for the past many years.

The share of blast furnace route steel-making is likely to remain flat at an estimated 89% in both years while the electric furnace mode will also possibly remain flat at 11% y-o-y, as per the data.

In 2022, the total scrap consumption was around 250 mnt, down 17.4 mnt or 6.5% y-o-y, according to a report from China. Specifically, steelmaking consumed 230 mnt, and foundry 20 mnt, while inventory contributed 9.56 mnt, the report further said.

Factors keeping scrap consumption range-bound

• Drop in crude steel output y-o-y: The slight y-o-y drop in China's crude steel production has also brought down the share of ferrous scrap usage. Crude steel production inched down 2% y-o-y from 1,032.80 mnt in 2021 to 1,010.81 mnt in 2022. The fall in output is in keeping with China's decarbonization plans. It aims to achieve carbon peaking in eight years' time (2030) and net zero or carbon neutralization by 2060.
  
  
• Fall in scrap generation: China's ferrous scrap generation, which had been steadily rising since the past few years, saw a 10 mnt or 4% y-o-y dip to 260 mnt from 270 mnt in 2021.
  
  

The drop in generation was mainly on account of the Covid surge last year as well as China's severe winter season which disrupts logistics movements.

• High energy prices put pressure on electric furnaces: The high energy prices last year also took a toll on China's electric route of steel-making in the form of squeezed margins. This also led to lower output and, resultantly, lesser scrap usage.
  
  
• Scrap imports drop y-o-y: China's ferrous scrap imports also dropped 4% y-o-y to over 400,000 tonnes last year compared to nearly 500,000 tonnes in the year before, denoting the dip in crude steel production and finished steel consumption. It may be mentioned that ferrous scrap imports were highly restricted in China, with only very superior grades allowed, because of environmental reasons. These norms were somewhat relaxed in 2018-19 to allow imports of certain grades too. The buzz had been that imports could even touch 10-12 mnt per annum. However, that scenario did not materialize, with imports remaining well under 1 mnt since 2020, the year when Covid struck and volumes plunged to less than 25,000 tonnes.
  
  

Outlook

Scrap usage globally is increasing, and China is no exception since it has its eyes fixed on its decarbonization targets. China plans to increase its use of steel scrap by 23% to 320 mnt by 2025 and increase production of recycled non-ferrous metals, in an effort to be self-sufficient in domestic supplies and to also meet the country's climate commitments.

For China, increasing the share of scrap usage in crude steel-making is imperative if it has to meet its decarb goals. As per a report, the EAF share would have had to rise to 9% by 2020, 22% by 2025, and 33% by 2030. Based on the typical rate of EAF adoption in mature crude steel-producing geographies, this is a feasible trajectory. However, the actual rate of adoption could be slower if the existing players prefer to invest in options allowing increased scrap usage in the blast furnace route.