Market awaiting China's steel scrap standard

Many steel market sources both in and out of China are eagerly waiting for the country's nationwide steel scrap standard guidelines that reportedly will be released by the end of 2020, as this may trigger a series of changes including the possibility of China's allowing free steel scrap imports, and the global steel scrap fundamentals with the joining of the world's top steel producing country.

China Association of Metalscrap Utilization (CAMU) and related governing bodies such as the Ministry of Ecology and Environment (MEE) and the Ministry of Industry and Information Technology have been working closely on specifying and standardizing domestic steel scrap supplies for the past couple of years, and the industrial standard guidelines may finally be released by the end of 2020, Mysteel Global understands.

No more details have been released regarding the matter, though industry pundits have been closely watching the progress with the Japanese steel scrap distributors eagerly looking forward to the day that they can explore the Chinese market with the greatest potential in the world.

Standardizing and coding of the domestically-produced steel scrap accordingly will greatly facilitate steel scrap quality checks and trading, and it may enable China to relieve the restriction on the country's steel scrap imports, Li Shubin, vice chairman of CAMU commented at a recent industrial event.

As a substitute of iron ore in large quantities, scrap will enable China to better leverage iron ore pricing and to reduce its heavy reliance on imported iron ore, according to him.

The new standard, once implemented, may see the restriction on China's steel scrap imports removed as early as in mid-2021, market sources speculate.

Market with mixed feeling on China steel scrap standard

"It is necessary for the Chinese steel scrap industry to have an unified quality standard for reference to enhance the market order, pricing and transparency, as the lack of a commonly-recognized industrial quality guidebook has made it hard for buyers and sellers to agree on pricing terms when they put in their own evaluation of the scrap supply," a Shanghai-based market analyst commented.

Chinese steel mills welcome the release of the nationwide standard too, as "this will prevent the suppliers from delivering steel scrap that contains any harmful, poisonous or radiant materials and thus reducing the chances of any unwanted incidents in steelmaking," an official from a steel mill in East China's Jiangsu province shared.

An official from a steel mill in East China's Jiangxi province also applauded CAMU's perseverance in proceeding with the working out an industrial standard to better discipline the domestic steel scrap industry, which may well make it possible to the resumption of free steel scrap imports in the future.

"I thinks it an important step to lead to the lifting of the restriction on steel scrap imports, and the overseas supplies will enable us (steel mills) to have a better leverage in steel scrap pricing in general instead of being forced to agree on price rises by the domestic suppliers or facing insufficient deliveries,"she commented, expecting that less volatility in steel scrap prices will also facilitate their production cost control and production stability.

Some market sources, though, warned that it was still too early to expect higher steel scrap supplies even if the ongoing restriction has been removed or loosened with the industrial standard in place.

The Chinese version of the scrap qualification is heard to be very detailed and harsh, and "at the beginning, the volume of qualified overseas steel scrap supplies may be very limited in volume, making it of little use to ease the supply tightness in the Chinese market," a market source from Shanghai warned.

China's domestic steel scrap suppliers, at the same time, are concerned about possible higher costs because of the more complicated quality checks because of the nationwide industrial standard.

"I am afraid that the execution of the industrial standard will increase our costs, as we may be required to provide qualification certificated from a third-party instead of a mutually-agreed standardization with the buyers as of now, and I do not think the buyers will feel obliged to shoulder the added cost," a scrap trader from East China's Zhejiang province shared.

At the same time, imported steel scrap of good or better quality with the pricing competitiveness will not only make it hard for him to transfer the cost but may also lose his long-time customers.

The Japanese steel scrap suppliers, in contrast, have been very curious and excited at the news, a Japanese source said.

"Many in Japan expect China to lift the scrap import restriction when the standard is released, and once China starts importing the Japanese steel scrap, the latter's price may immediately exceed Yen 30,000/tonne ($285/t)," she shared, adding that the Japanese sources are "very hungry about any information that with the keywords of China and scrap".

The Japanese H2 grade scrap is sold at around Yen 26,000-27,000/t for the time being.

China's steel scrap imports down to almost "zero"

China has been tightening solid waste material imports since the end of 2016, and the country imported 1.34 million tonnes of steel scrap in 2018, or down 42.3%% on year.

China's steel scrap import volume declined further by 86.3% on year to only 184,300 tonnes in 2019 when the country set steel scrap imports in the category of "under restriction" together with high-grade copper and aluminium scrap on July 1 2019.

Starting January 1 2020, China has included another 16 types of solid waste materials including stainless steel, tungsten, magnesium and titanium scraps under the restriction.

Over January-July, China's steel scrap imports slumped 92% on year to 13,142 tonnes, Mysteel Global noted.

Since the restriction was imposed in mid-2019, the Chinese steel mills, and CAMU have been lobbying China's central government to treat steel scrap differently, arguing that it will only benefit the eco-friendliness in China's steelmaking as it will reduce iron ore and coke consumption.

In late June 2020, Sun Jiansheng - CAMU's secretary general - disclosed that MEE had agreed to address steel scrap as "recycling steel materials" to differentiate it from other metallurgical scraps, making it more likely to be granted special treatment, as reported.

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