A lack of clarity around China's new standards for ferrous scrap imports has sowed confusion over what grades will be allowed once the policy goes into effect.
Ferrous scrap traders and suppliers across Asia, North America and Europe have begun to report inquiries from Chinese consumers in the last few weeks to discuss their potential return to the market.
Documentation regarding the new standards for ferrous scrap imports so far has not identified any specific chemical compositions for scrap grades or carried-waste thresholds. Only basic sizing, general sources and examples of typical items have been described in proposals obtained and viewed by Argus.
The new standards will categorize scrap into six groups: heavy recycling steel material, medium recycling steel material, small recycling material, shredded recycling steel material, bundled recycling steel material and stainless recycling steel material. Each group is subdivided into two to four classifications according to physical specifications and processing methods.
Without clarity, market participants have begun to debate what grades will be allowed to be imported into the country with much of the focus on whether HMS 1/2 80:20, the most commonly traded seaborne grade of ferrous scrap, will be included.
The inclusion or exclusion of HMS 1/2 80:20 would have major ramifications on the global ferrous scrap export market in 2021 and historical spreads between various scrap grades.
Market sources agreed, though, that high-grade ferrous scrap items will most likely clear the final standards.
"Any high-grade scrap such as bonus, P&S, busheling or OA from the UK will most certainly meet the standard while HMS is questionable," one Chinese consumer said.
"One of the main aims for this new policy is to ensure that scrap being imported to China is of high quality that will allow and encourage Chinese mills to improve their steel quality and to produce more value-added steel products that can compete in the global markets while also limiting air pollution from burning iron ore and coal," the consumer said.
Other sources familiar with the matter said it is likely that imports would resume with high-quality scrap grades like P&S, busheling and bundles, later transitioning to shred and HMS 1/2 80:20, potentially beginning in the first quarter of 2021.
Similarly, the Institute of Scrap Recycling Industries (ISRI) interpreted the proposed ferrous scrap standards outlined by the Chinese government to encompass numerous ferrous scrap grades including and not limited to HMS grades.
ISRI submitted comments on the proposed draft standards 8 December to China's State Administration for Market Regulation, National Standardization Management Committee and National Pig Iron and Ferroalloy Standardization Technical Committee.
Market eyes quick implementation
The official implementation date for the new standards has not yet been finalized, but market participants familiar with the issue told Argus that the policy could go into effect as early as 1 January.
This timeline corresponds with China's Ministry of Ecology and Environmental's most recent announcement on ferrous scrap quotas 25 November which stated that ferrous scrap importers can still use their quotas allotted under the current system up until 31 December. The year-end cut-off date has fueled speculation that January could mark the implementation of the ferrous scrap import new standards.
Most market participants are confident that the standards will be implemented next year but remain cautious, citing China's re-classification of non-ferrous scrap import standards which saw repeated delays in being rolled-out from the initial targeted date outlined by the government.
Even with a potentially drawn re-entry into the ferrous scrap import market, China's return will likely be a game changer for ferrous scrap by boosting demand and tightening global supplies, similar to what has been witnessed in the merchant pig iron market with the nation's renewal in imports.
If no further information is issued before the standards go into effect, shippers may adopt similar strategies taken when China implemented its non-ferrous scrap import standards in November, with suppliers cautiously resuming shipments on a trial-load basis.
If this is repeated on the ferrous scrap import side as well, the momentum of the implementation of the program may be partially drawn out or delayed.
By Brad MacAulay and Chi Hin Ling
