Chinese ferrous scrap prices seen firming in Jan

Chinese prices of ferrous scrap are likely to strengthen further this month supported by growing replenishment demand from steelmakers, while the stronger cost-effectiveness of scrap compared with other feed materials will also encourage integrated steel mills to lift their scrap use, Mysteel's latest survey suggests.

Last month, domestic steel scrap prices continued firming though at a faster pace, with Mysteel's national steel scrap index reaching Yuan 3,034.5/tonne ($427.4/t) including the 13% VAT on December 29, higher by Yuan 98.1/t on month. Entering this month, the price has increased further to touch a more than eight-month high of Yuan 3,078.9/t by January 4.

Steelmakers across the country have become more eager to secure steel scrap from dealers and scrapyards, aiming to build sufficient feed stocks for production for the remainder of winter, as reported. Since most mills are yet to complete their planned winter stocking, their demand for scrap will only grow stronger this month, Mysteel Global noted.

Under these circumstances, scrapyards have started to hoard steel scrap and control their sales, confidently expecting steelmakers to eventually offer higher purchase prices, Mysteel's other survey showed.

As of January 3, total steel scrap inventories held by the 584 scrap yards qualified by China's Ministry of Industry and Information Technology reached 1.06 million tonnes after rising for seven straight weeks, according to Mysteel's tracking.

"Scrap suppliers will likely hold back their selling this month," a market watcher based in Shanghai predicted, noting that this will provide firm support for scrap prices.

On the other hand, immediate demand for steel scrap remains robust from both blast furnace (BF) and electric-arc-furnace (EAF) steelmakers, even though the mills are reining in their production, Mysteel Global noted.

"For BF mills, steel scrap is much more cost effective than hot metal as feed materials, while most EAF mills are still enjoying healthy profits on steel sales," the Shanghai market watcher explained.

As of January 4, the cost of making steel using scrap among integrated mills in East China's Jiangsu province averaged Yuan 2,743/t excluding the 13% VAT, lower by Yuan 290,9/t compared with using hot metal, according to Mysteel's assessment.

However, "production among the EAF mills is expected to retreat at a faster rate toward the end of this month," the market watcher warned, mainly due to the approach of the Chinese New Year holiday over February 10-17 when steel trading quietens in the market.

"Domestic steel scrap prices may show signs of weakening in late January under such pressure," he believed.

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