China's steel scrap prices seen firming in Sept

China's domestic steel scrap prices will probably move upward in September, supported by recovering steel demand among end-users, as well as the ongoing tightness of scrap supplies, according to Mysteel's monthly survey.
Last month, the country's steel scrap prices had lost ground overall as the electric-arc-furnace (EAF) steelmakers, struggling with negative margins, pressed their scrap buying prices to shave their costs, Mysteel Global noted. Meanwhile, under the central government's directive on crude steel output control, domestic steel scrap prices were also affected by the possibility of production cuts among steelmakers.

As of August 31, China's composite steel scrap price index had lost Yuan 48.1/tonne ($6.7/t) from July 31 to stand at Yuan 2,986.7/t including the 13% VAT, according to Mysteel's assessment. Entering this month, the price had rebounded to Yuan 2,998.2/t as of September 4.

"The fact that EAF mills are still suffering severe losses (on selling finished steel) is likely to continue weighing on scrap prices this month," a market analyst based in Shanghai warned. As of September 4, the losses incurred by the 40 independent EAF steelmakers under Mysteel's daily tracking averaged Yuan 136/t.

Nevertheless, the likely enforcement of controls on crude steel production may help support scrap prices, as the reduction in steel output would drive up finished steel prices, especially when the market embraces the traditional peak season for steel consumption in autumn, the analyst noted.

"Most blast furnace (BF) steel mills lifted their production last month, hoping to see a further recovery in steel demand in September," she remarked. Mysteel's survey showed that capacity utilization among the 247 sampled BF mills it tracks had hit a 30-month high by the end of August.

This also gave a lift to steel scrap consumption in China, Mysteel's other survey showed, with the total volume consumed by the 250 BF and EAF mills it covers reaching 10.6 million tonnes in August, higher by 7.73% on month.

"The steelmaking cost using hot metal from blast furnaces surpassed that using steel scrap for the first time in three months in early August," the analyst explained, noting that this led domestic steelmakers to add more scrap in their converters.

By end-August, for example, the cost of making steel using scrap among integrated mills in East China's Jiangsu province stood at Yuan 2,623/t excluding the 13% VAT, lower by Yuan 48.5/t compared with that using hot metal, according to Mysteel's assessment.

On the other hand, ferrous scrap availability is likely to expand this month, as the cooler weather will encourage the companies in the steel industry chain - including end-users - to extend their working hours, Mysteel Global noted, which will increase scrap generation.

However, "the supply growth will be very limited, and overall scrap availability is likely to remain tight this month," the analyst predicted. "The scrap supply from manufacturing and construction sites has not shown any marked growth so far," she observed.

As of September 1, total inventories of steel scrap held by the 584 Chinese steel scrap yards qualified by the country's Ministry of Industry and Information Technology stood at 1.09 million tonnes, lower by some 4.9% on month and hitting the lowest level since October last year, 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.