Chinese ferrous scrap import viability grows

Imports of ferrous scrap into China are becoming more viable following a fall in global seaborne prices that has made imported material competitive with domestic supply.

A number of trial orders of Japanese ferrous scrap were confirmed after China reopened its doors for ferrous scrap imports on 1 January 2021. Those orders were mostly for HS grade and were priced around $495-500/t cfr China, which was much higher than Chinese domestic prices during early January. This made it unattractive for buyers to import scrap in large volumes. Japanese HS grade is similar to China's heavy melt No 3 scrap and the US P&S grade.

The window for more scrap imports into China is likely to open after international ferrous scrap prices started to plummet from their multi-year peak from the week of 11 January onward. The Argus HMS 1/2 80:20 cfr Turkey bulk ferrous scrap assessment fell by $69/t from 11 January to $413/t on 26 January. The H2 price delivered to Japanese benchmark steelmaker Tokyo Steel's Utsunomiya plant fell by ¥11,000/t ($106/t) in the period 12-27 January.

Over the same period, China's domestic scrap market was comparatively more stable as prices were supported by steel mills' need to restock before the lunar new year holiday that begins on 11 February.

A new HS deal at $435/t cfr China was heard in the market this week. The price is equivalent to around Yn3,142-3,180/t with VAT, which when factoring in a port handling charge is around a similar price level to Shagang's No 3 purchase price at Yn3,220/t with VAT. Some market participants commented that the deal might not be finalised yet as the first new Chinese import cargo was still under inspection at Shanghai port. But $435/t cfr China was a workable price for both parties.

The fall in Japanese domestic prices has been driven by a collapse in competition from Tokyo Bay exporters. Most overseas buyers halted purchases when scrap prices were at the peak owing to thin profit margins on finished steel products, for which their selling prices increased at a slower rate relative to scrap. More scrap was sent to Japanese domestic mills at higher prices after exporters cut collection, accelerating the build-up of domestic inventories. Even before Tokyo Steel started to cut prices, a number of mills in the Kanto region had already tried to reduce collection prices after hitting maximum inventory levels.

Seaborne scrap price sentiment was further dented as China's steel market turned tepid on cold weather and rising fresh Covid-19 infection cases in north China. Japanese suppliers that maintained high scrap inventory levels when prices were rising became anxious when the anticipated surge of demand from China following its first import purchases did not materialise.

Consequently, suppliers rushed to sell to domestic Japanese buyers and steelmakers in other Asian markets, triggering a swift decline from the price peak.

More negotiations for Chinese ferrous scrap import purchases are expected to be carried out after the first import cargo finishes inspection and gets customs clearance. Falling Japanese scrap prices will make it attractive for Chinese buyers to seriously consider buying more when the import price falls below the domestic price. Many suppliers from different origins indicated that they had received more enquiries from Chinese traders or mills recently.

By Ji Xia and Terry Chuay