South China Morning Post reported that China’s first deals to import scrap steel since lifting a two year ban on it last week are symbolic, Baowu Steel Group & Zhejiang Judong buying scrap steel from Japan, and do not signal that the country is set to significantly reduce its demand for iron ore as the key steelmaking ingredient. S&P Global Platts Keith Tan said “The market thinks these deals are mostly symbolic, as current economics don’t add up. Chinese domestic scrap prices are nearly USD 60 a tonne cheaper than Japanese scrap prices after accounting for freight rates. So, we don’t think there will be any surge in imports in the short term. While some cargoes were booked on New Year’s Day from Japan to China, we believe this was little more than a ‘public relations trade’ rather than out of any economic benefit. Looking at the economics, Chinese mills can procure similar ferrous scrap grades locally today at much more competitive rates compared with the cargoes recently purchased from Japan. Furthermore, with 90% of China’s steelmaking reliant on coking coal blast furnaces, steel scrap would be unlikely to edge out iron ore in the short term, as scrap steel is more compatible with carbon friendly electric arc furnaces.”
According to S&P Global Platts, Ouyeel, a ferrous-scrap trading unit under China Baowu Steel Group bought 3,000 tonnes of high grade scrap from Japanese trader Mitsui & Co on January 1 to be used for steel production by its subsidiary Baoshan Iron & Steel. Judong, a metal scrap processor and trader in east China, also said in a WeChat post that it had bought 2,800 tonnes of highgrade scrap from Japan’s Heiwa. Prices were also not revealed.
Navigate Commodities estimates current local Chinese steel-scrap prices at USD 420-440 a tonne, and calculates Japanese high-grade steel scrap at around USD 497 a tonne. Both calculations show imported scrap prices exceed local prices, which would deter steel mills.
The move to permit scrap steel had also been long in the making, as Chinese authorities pivoted towards waste management and recycling. China lifted scrap steel ban for steel production at start of January after it had been blocked since 2018 to prevent global dumping of low grade scrap waste. Last week, new standards were also formalised by authorities to classify scrap as a recycled steel raw material, while also reducing the import tariff to zero. This adjustment coincided with a total ban on general imported solid waste that went into effect on January 1.
According to Navigate Commodities “Global iron ore consumption was around 2.2 billion tonnes in 2019, with China consuming around 1.2 billion tonnes. In comparison, global scrap consumption was around 686 million tonnes, with China accounting for around 240 tonnes.”