Chinese steel scrap traders speeding up deliveries to mills

Steel scrap deliveries to China's domestic steel mills have gathered pace recently, as some scrap traders have sped up deliveries for fear of prices declining near-term, market sources commented Thursday. The traders have been spooked by the bearish steel-market sentiment recently and the negative impact this is having on prices of other raw materials.

As of Wednesday, steel scrap deliveries to 15 steel mills sampled by Mysteel including both blast furnace (BF) and electric-arc-furnace (EAF) producers had averaged 6,340 tonnes/day over the March 4-10 period, up by a sizzling 31.2% on week.

"Since most steel mills have raised their scrap procurement prices over the past two weeks, we've noted a significant improvement in scrap arrivals to these mills," a Shanghai-based market watcher said. Also, logistics have fully returned to normal after the Chinese New Year disruptions, and almost all truck drivers are now back at work, she remarked, another factor supporting the recovery of scrap deliveries to mills.

Her comment was echoed by an official from a steel mill in East China's Jiangsu province. "Our scrap yards are now full but despite this, some of our regular scrap dealers have continued to deliver scrap to our works, with some trucks even queuing up outside our mill," he said, adding that his company had to clip their scrap buying prices to control the surge in deliveries.

This mill is not alone in having to trim buying prices to dissuade deliveries. Over the past two days, some 50 BF and EAF mills have reduced their scrap procurement prices by Yuan 20-70/t ($3-10.7/t), according to Mysteel's daily tracking.

"The previous robust demand from steelmakers and bullish market sentiment made us hold off selling and instead, work to accumulate our own inventories," a scrap trader in East China's Jiangxi province told Mysteel Global, adding that he had also paid higher prices to local scrap collectors to secure more scrap materials.

"However, the recent weakening in both steel and other raw material prices has caused some panic among us," he admitted. "We were forced to speed up our shipments to the steelmakers - of the scrap we'd bought at higher contract prices previously - just in case prices decline further in the near term and result in us making losses," he explained.

As of March 10, Mysteel's steel scrap index was still largely stable, up slightly by Yuan 4.1/t on week to Yuan 3,285.3/t on delivery, while Mysteel PORTDEX 62% Australian Fines price in Qingdao had decreased by Yuan 69/wmt to Yuan 1,126/wmt FOT, both including the 13% VAT, according to the database.

However, even if domestic scrap prices start to lose ground, the decrease is likely to be limited, as the imbalance between scrap demand and supply remains.

"After this round of concentrated deliveries, steel scrap stocks held by some traders have plunged too much. Also, though some mills are nursing full inventories of scrap, their daily consumption is also keeping rather high - thanks to the healthy profit margins they're making on finished steel - so their demand for scrap will stay strong," the Shanghai market watcher predicted.

On March 10, daily steel scrap consumption among the 15 surveyed steel mills averaged 5,346.7 t/d, up 6.7% on week, Mysteel's data shows.

Written by Lindsey Liu, liulingxian@mysteel.com

This article has been published under an article exchange agreement between Mysteel Global and SteelMint.