Chinese ferrous scrapyards cautious about winter stocking

Mysteel: Ferrous scrap processors in China have barely started their scrap stockpiling for winter operations even though freezing air has swept the whole country, according to a new Mysteel survey. The scrap yards are delaying mainly because of their concerns about cash flow and the dim outlook for scrap demand next spring, respondents noted.

As temperatures drop, steel scrap generation declines and market activity slows in China, so typically steel scrap processors build higher inventories of the materials at the onset of winter to ensure they have adequate supply for steel mills around the Chinese New Year (CNY) holiday that usually falls in midwinter, Mysteel Global noted.

In recent few years, however, domestic scrapyards have shown less enthusiasm for winter stockpiling, as most yards are struggling with slim profits. Instead, many have adopted a fast-turnover inventory strategy, fearing that stock accumulation will bring financial risks, as reported.

Among the 151 domestic steel scrap recycling and processing enterprises under Mysteel's latest survey, only 68 expressed their willingness to restock scrap for this winter, of which 35 are located in Northeast China where the severe winter weather always results in particularly tight supplies of steel scrap. Winter temperatures in Heilongjiang province, for example, can dip to as low as -30 degrees Celsius.

Meanwhile, the scrap volumes these mills plan to restock are generally lower than last year, the survey results showed.

Most scrap processors consider current scrap prices too high for winter stockpiling, even though the prices are much lower compared with the same period last year, Mysteel Global learned.

As of November 27, for example, the national price of the 6-8mm common carbon steel scrap was assessed by Mysteel at Yuan 2,185/tonne ($301.6/t) excluding the 13% VAT, lower by Yuan 335/t or 13.3% on year.

"Many scrap yards will not start replenishing stocks unless prices drop by around Yuan 100/t from the current level," a market analyst based in Shanghai said.

On the other hand, there are no clear signs that domestic steel demand will rebound significantly next year, so the scrap suppliers do not anticipate a major increase in steelmakers' production after the CNY holiday in early February, according to the survey.

As such, scrapyards believe there is no need to accumulate more inventories for sales after the holidays, since the steel mills' demand may remain tepid at that time, Mysteel Global noted.

Note: This article has been written in accordance with a content exchange agreement between Mysteel Global and BigMint.