Bearish sentiments prevail in China's scrap market, outlook mixed

Scrap prices in the Chinese domestic market have moved down, with continuous price cutting conducted by Jiangsu-based Shagang Group, China’s largest private steelmaker, in particular. Accordingly, most recently, on August 31, the company has cut its purchase scrap prices by a further RMB 80/mt ($7.5/mt), following the previous cuts on August 19, August 20 and August 30. Such steps by the Chinese steelmaker signal its bearish outlook for the future scrap market, with other Chinese mills being expected to keep following the same pattern. Overall, the downtrend in the ferrous metal futures market in China has exerted a negative impact on scrap prices in the given week. However, as inventories of scrap have been at relatively low levels, scrap prices may rise slightly in the near future. Furthermore, market players have become more optimistic regarding the future prospects for finished steel, expecting better demand in September, which may bolster scrap prices to some extent as well.

This week, no import scrap transactions have been heard in China, with workable prices for import HS scrap having been assessed at $400/mt at the highest, $15-20/mt lower than Japanese scrap suppliers have been targeting in offerings to China. Moreover, given the latest price increases in deals to South Korea, Japanese scrap suppliers may seek higher price levels in China as well, perhaps at $435-440/mt CFR, which is apparently unworkable for Chinese customers.

Average domestic HMS scrap prices in China are at RMB 2,804/mt ex-warehouse, moving up by RMB 9/mt compared to August 24, according to SteelOrbis’ information.

Average scrap prices in China’s main markets are presented in the following table:

$1 = RMB 6.8906