Poor Demand to Hit Chinese Scrap Prices in Mar'20

Domestic steel scrap prices in most Chinese markets this month will very likely to keep softening as steel mill demand for scrap remains low, according to Mysteel's latest survey. Respondents cited declines in scrap consumption among steelmakers because of the slow recovery of finished steel demand and plunging steel margins.

As of March 4, Mysteel's steel scrap index was assessed at Yuan 2,502.8/tonne ($357.5/t) including the 13% VAT, lower by a total of Yuan 70.1/t on month, Mysteel's data showed.

"The domestic mills' appetite for steel scrap remains low as their finished steel sales have been lukewarm given the weakness of downstream demand," a Shanghai-based market source observed.

At the same time, the plunging steel margins dampened both blast furnace (BF) and electric-arc-furnace (EAF) producers' enthusiasm to buy scrap, Mysteel Global noted.

As of February 27, the daily consumption of steel scrap at the 61 mills Mysteel monitors regularly decreased further by another 4.6% on week or 28% on the month, Mysteel's survey shows.

As of March 1, the price spread between rebar and scrap had declined to Yuan 1051.5/t, down a total of Yuan 131.6/t on month, according to Mysteel's database.

"BF mills are now reducing output or halting production for maintenance to ease the burden of high finished steel inventories and to control cash flow. Thus, when the scrap price became less competitive, mills were forced to reduce the ratio of scrap feeds in furnaces and converters," the Shanghai analyst added.

On the other hand, there are few signs of EAF mills resuming operation as of now. "We still dare not resume business, as steel margins are plummeting rapidly. We would lose Yuan 300/t in the current market conditions," an official from an independent EAF mill in East China remarked.

As of February 27, the capacity utilization rate of 53 independent EAF steelmakers across China which Mysteel monitors had remained at a record low level of 3.7%, down 0.53 percentage point on month.

In addition, the weak demand for their resources has kept many scrap collecting and processing companies at a standstill as well, causing scrap supplies to remain tight at present. Once the collectors return, if scrap demand still remains low, scrap prices are likely to decrease further, Mysteel Global noted.

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