Chinese steel scrap prices likely to rebound in near term

Steel scrap prices across China should strengthen in the near future, as scrap demand from steel mills is improving while supply may remain tight because of slow scrap sourcing and processing, market sources suggested on Thursday.

"With more independent electric-arc-furnace (EAF) steelmakers resuming operation and integrated mills consistently ramping up production, demand for domestic steel scrap has improved," a Shanghai-based market watcher commented. "And going forward, some mills will feel the need to buy additional stocks to support their operations during the upcoming National Day holiday over October 1-7," she added.

For example, as of September 8, the capacity utilization rate among 85 EAF mills across China had jumped by 6.26 percentage points on week to reach a three-month high of 52.1%, according to Mysteel's database.

Despite scrap demand witnessing a gradual improvement, domestic scrap supply is still tight, Mysteel Global noted.

"Though daytime temperatures are not as high now as they were in mid-summer, outdoor scrap collecting and processing activities are still challenged by resurging pandemic cases in many regions of China," she explained.

As of September 9, the total volume of recycled steel scrap held by 105 scrapyards nationwide under Mysteel's other survey had decreased by 22% on week to 46,900 tonnes.

Moreover, the market watcher also added that recent heavy rains caused by Typhoon Muifa had also resulted in an overall reduction in scrap supply.

Typhoon Muifa, the twelfth to whirl through East Asia this year, bought torrential rains and strong winds to China's eastern regions during September 12-15, bringing local market activities to a temporary halt - from upstream raw material transportation to downstream steel trading, Mysteel Global noted.

"We have stopped collecting and suspended operations since September 12," an official from a scrapyard near ports in East China's Zhejiang admitted on Thursday. "The typhoon made landfall yesterday evening and has now left, so we are considering resuming operation tomorrow," he disclosed.

"Our operations were not affected by the typhoon as our yard is far from the docks," another scrap trader in Zhejiang commented. "However, recent heavy rains have greatly slowed the transport of unprocessed scrap to our yards, so that we could barely maintain normal processing due to a lack of raw materials," he said.

The resulting supply tightness of processed scrap - at a time when steelmakers' demand is steady - made some traders focus on collecting more scrap rather than selling, to wait for higher prices, Mysteel Global noted.

Nevertheless, market sources also warned that the scope for further rises in scrap prices may be limited.

"If scrap prices continue to track higher, the steel mills' already thin margins will be further impacted, while actual steel demand from end-users has not shown significant improvement. Should this happen, mills will reduce their consumption of scrap - which will inevitably weigh on prices," the analyst said.

As of September 14, Mysteel's steel scrap price index had edged up by Yuan 17.4/tonne ($2.5/t) on week to Yuan 3,171.6/t on delivery and including the 13% VAT, according to the database.

Written by Lindsey Liu, liulingxian@mysteel.com
This article has been published under an article exchange agreement between Mysteel Global and SteelMint.