China's scrap prices keep falling on lower capacity utilization of mills

The weakness in China's domestic steel scrap prices persisted throughout the week of May 13-20, with Mysteel's steel scrap price index decreasing for the second week by another Yuan 29.5/tonne ($4.4/t) on week to Yuan 3,389.7/t on delivery and including the 13% VAT as of May 20. The decline in the scrap index price was in tandem with the continuous falls in domestic steel prices, new data show.

The substantial softening of finished steel prices last week further squeezed the steel producers' steel margins, forcing them to apply pressure to suppliers of steelmaking raw materials including collectors and traders of steel scrap, Mysteel Global noted.

As of May 20, China's national price of the HRB400E 20mm dia rebar under Mysteel's assessment had fallen by Yuan 107/t on week to Yuan 4,849/t and including the 13% VAT.

Lower steel margins also reduced the Chinese steel mills' appetite for scrap consumption, mainly the independent electric-arc-furnace (EAF) mills, Mysteel data indicate. The latest survey among the 85 EAF mills Mysteel regularly samples nationwide showed their capacity utilization rate had decreased for the second week as of May 19, contracting by another 7.76 percentage points on week to 59.29% - a six-week low.

In tandem, over May 13-20, daily steel scrap consumption among 61 blast furnace and EAF steel producers across China dipped by 1.5% on week to average 3,102 tonnes/day, while daily scrap deliveries to the 61 sampled mills decreased too by a larger 6.1% on week to average 2,935 t/d, according to Mysteel's survey.

"The recent weakness in the market spurred some scrap traders to accelerate their deliveries to the mills for fear of further price declines. However, due to the lingering coronavirus situation, scrap availability in the domestic market overall was actually limited. As a result, scrap traders with declining stocks at hand had to slow their pace of deliveries to mills," a Shanghai-based market watcher explained.

The significant cutback in deliveries saw steel scrap stocks at the 61 steel mills edge down by 71,200 tonnes or 3.1% on week to 2.23 million tonnes as of May 19, according to Mysteel's assessment.

Written by Lindsey Liu, liulingxian@mysteel.com

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