China's steel scrap prices hit 4-month low on pessimism

China's steel scrap prices headed south during the survey period of October 7-13, with Mysteel's national steel scrap price index hitting a four-month low of Yuan 2,937.4/tonne ($409/t) including the 13% VAT as of October 13, or being lower by Yuan 42.6/t from October 7. The bearish market sentiment amid the slack recovery in Chinese steel demand was largely blamed for the price drop, Mysteel Global noted.

Shagang Group, China's leading electric-arc-furnace (EAF) steelmaker headquartered in East China's Jiangsu province, reduced its steel scrap purchase prices by Yuan 50/t on October 10 to shave costs on feed materials, as reported.

On October 14, the EAF maker announced another reduction of Yuan 30/t for its scrap buying prices and is now paying scrap dealers Yuan 2,890-2,950/t for domestically processed HMS grade scrap including delivery to plants and the 13% VAT.

Shagang's latest price adjustment sparked panic among domestic scrap dealers, making them rush to deliver scrap to customers for fear that the prices may fall further, a market analyst in Shanghai observed.

Consequently, scrap deliveries to the 61 blast-furnace (BF) and electric-arc-furnace (EAF) steelmakers in China under Mysteel's regular survey averaged 2,777 tonnes/day over October 7-12, increasing by a large 12.1% from the previous week.

During the same period, however, scrap consumption among these 61 steel producers remained little changed on week, down by a tiny 0.5% from the previous week to average 2,593 t/d, Mysteel's survey showed.

Accordingly, total steel scrap inventories held by the sampled 61 mills climbed by 76,397 tonnes or 4.2% on week to reach 1.89 million tonnes as of October 12, which would be sufficient to last 11 days of their use, 0.1 day longer than the prior week, according to Mysteel's assessment.

Nevertheless, compared with other steelmaking inputs including iron ore and coke, steel scrap had remained more cost effective, which may support scrap demand from Chinese mills and slow down the decline in scrap prices in the near term, despite the prevailing market pessimism, the analyst noted.

As of October 13, costs of making steel using scrap among integrated mills in Jiangsu province reached Yuan 2,603/t excluding the 13% VAT, lower by Yuan 154.7/t than that using hot metal, according to Mysteel's assessment.

Written by Anthea Shi, shihui@mysteel.com

Edited by Zhenqi Yang, yangzhenqi@mysteel.com

Note: This article has been written in accordance with an article exchange agreement between Mysteel Global and SteelMint.