Chinese EAFs prefer pig iron to scrap

SteelOrbis Shanghai Currently scrap prices are somewhat high compared to that of pig iron, therefore, many steelmakers cut their purchasing volume of scrap, using pig iron to produce crude steel. Sources report that the highest price of pig iron is about RMB 100/mt higher than that of scrap prices. Under normal circumstances, pig iron prices are RMB 300/mt higher than scrap prices. Most steelmakers think the current scrap price is too high and they keep small quantity of inventory. The purchasing volume of Baosteel dropped to 70,000 metric tons last month. Moreover, the purchasing price is at RMB 1,940/mt ($241/mt), which is a low level. Apart from Baosteel, other steelmakers also cut their purchasing prices, which led to a drop in market prices of scrap. At the end of February 28, Tuesday, heavy scrap price at Zhang Jiagang was down RMB 20/mt weekly at RMB 1,940/mt ($241/mt), and that of Alashankou in Xinjiang Autonomous Region was retaining its RMB 1,700/mt ($211/mt) level. Heavy scrap is mostly consumed in Southern and Eastern China, as most of the electric arc furnace using mills are in these regions. The crude steel output of Guangzhou Steel, Shaoguan Steel, Jinan Steel and Laiwu Steel in these regions is down. Especially Jinan Steel's January crude steel output dropped 514,000 mt year on year to 850,000 metric tons in January. The decrease in output leads to a low demand for heavy scrap. Therefore, heavy prices are in a downward trend. According to the statistics, scrap steel imports in Alashankou decreased 69.4 percent year on year and 41.8 percent month on month to 51,400 metric tons in January. Meanwhile, its value dropped 64 percent year on year to $8.3009 million. The decrease is due mainly to the changes in management policies on scrap imports. The Ministry of Commerce and the Customs Administration further standardized the taxation policy on scrap imports. The latest scrap imports reported to SteelOrbis were from Shagang before the Spring Fetival at $213/mt CFR level. Pig iron prices are expected to increase. Scrap prices may also follow an upward trend in the long run due to the decreasing scrap inventories. However, prices are expected to keep a weak trend this week.