China's Steel Scrap Market Faces Short Supply

China's domestic market for steel scrap is now facing supply tightness, with the reduced availability of the material seen likely to help ensure that domestic steel prices stay stable, market sources told Mysteel Global on Thursday.

As of March 18, Mysteel's steel scrap price index, for example, was unchanged for a second day at Yuan 2,491.4/tonne ($356/t) and including the 13% VAT, higher by a mere Yuan 0.3/t on week, according to Mysteel's database.

Apart from the recovery of electric-arc-furnace (EAF) capacity utilization, the price stability of steel scrap is also a consequence of the lingering tightness in scrap availability, according to a Shanghai-based market watcher who identified three main causes.

First, though transportation networks around the country are generally trouble-free now, some roads in towns are still blocked. Local authorities are tightening health checks on workers returning to work, a crackdown that has partially impacted the collection of steel scrap in towns.

Second, though China's central government has encouraged companies to re-open after the long Chinese New Year break, the process of applying to resume activity for scrap collecting and processing enterprises is cumbersome, which has slowed down their resumption of business, resulting in the decrease in scrap supply.

Third, for scrap recyclers that have now restarted, limitations on scrap resources are compounding the usual difficulties of collecting material and are intensifying the competition among collectors.

"Our current steel scrap stocks at hand have declined to around 1,500 tonnes, yet before the Chinese New Year holiday we'd stocked more than 6,000 tonnes of scrap," an official from a scrap recycling company in East China's Zhejiang province said.

Downstream finished steel demand has gradually returned to normal, with China's total sales volume of rebar, wire rod and bar-in-coil among 237 sampled traders climbing to a recent 4-month peak at 211,665 tonnes/day as of March 18, further increasing steel mills' demand for steel scrap. However, industry sources predict that the situation of scrap supply tightness will remain for a while, and say that consequently, domestic scrap prices are likely to stay stable or even increase in the near term.

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