SteelOrbis Shanghai
In August, Chinese
scrap market first went down, then became stable, and began to recover in the end of the month.
During the beginning of August, the international
scrap market was in a continuous decline. For example, the average price of
scrap at US went down around $60/lt ($59/mt) to $230-240/lt ($226-236/mt) compared with $290-300/lt ($285-295/mt) in July, back to the level of January this year, clearing up the cumulative increase for the first half year. The
scrap price at
Japan decreased approximately Yen 400/mt ($3) from July to August.
Scrap prices continued to fall during July and early August in
China, too. Chinese finished steel market dropped remarkably since late-June. In early August, except for some kinds of products that became stable, the prices of most steel products were still in the downward trend. Therefore, Eastern
China based
Baosteel, Magang, northern
China based Shougang, Tangshan Steel and other steel mills all lowered their
scrap purchase prices by about RMB 80/mt ($10) in early August. Most of the steel mills in southern
China did not lower their purchase price, but they cut the purchase quantity and required higher quality, which may also mean a kind of price lowering.
Scrap inventory of the steel mills in
China fell to a relatively low level in mid-August, because the amount of
scrap that arrived in early August was very little. Therefore, most steel mills stopped lowering their purchase prices, and
scrap market became stable gradually. However, due to the continuous price drop in international market, steel mills had a “wait-and-see” attitude.
In late August, with the prices of finished steel becoming stable, the steel mills had more confidence in the future market. Some steel mills slightly lowered the purchase price in order to control the
production costs, but some steel mills with very low inventory hiked the prices by a small margin. Meanwhile, it seems that international market would turn better. Tokyo Steel again raised the purchase price of
scrap by Yen 500-1,000/mt ($4-9) as of August 24. Influenced by this news, Chinese traders became confident and unwilling to sell at low price, hence prices moved firm and stable.
In the end of week 34, heavy
scrap prices at Zhang Jiagang remained unchanged at RMB 2,010/mt ($253) since the beginning of August, down RMB 60/mt ($8) compared with the previous month, and that of Alashankou in Xinjiang Autonomous Region has been stable at RMB 1,650/mt ($207) since the second week of August, down RMB 120/mt ($15) from July.
According to the statistics by Customs, the
scrap imports for the first six months this year totaled 3.32 million mt, down 34 percent compared with the same period last year, not to speak of the 23-percent growth in
iron ore imports.
There are several reasons that led to this situation. The major one is that it is hard for steel mills to afford the higher
scrap price in international market in such a background of low
scrap accumulation and tight supply in
China. Therefore, despite the big increase in international
iron ore prices, the costs for Chinese steel mills is not much because of the low requirements on environmental
production in
China.
According to the statistics by
China Association of Metal
Scrap Utilization (CAMSU), since 2001, with the decreasing
consumption of iron and steel stocks in
China, the ratio of electrical furnace
production to total crude steel
production has been in gradual decline. Iron-to-steel ratio in
China increased to 93.7 percent in 2005 compared with 91.1 percent in 2004; that in US reached 44 percent,
Germany 65 percent, and
Japan 75 percent. In 2004, unit
scrap consumption got to 191 kg/ton steel, dropping to 179 kg/ton steel in 2005. This index decreased 21 kg/ton steel to 158 kg/ton steel over the first half year. In addition, the electrical furnace
production covered about 13 percent of the total crude steel
production in 2005, but it fell to less than 10 percent in the first six months. The
scrap consumption totaled 31.50 million mt in the first half year, equal to the level of the previous year, while the crude steel
production increased 19 percent.
The decline in
scrap consumption and ratio of electrical furnace
production is not beneficial to the quality improvement of crude steel, leading to the restriction on finished steel
production of high quality.
In such a background, Chinese steel mills have taken various measures to raise the
scrap collection rate. Among these measures, the development and utilization of metallurgical residues is the most important one, which can not only collect a great deal of
scrap, but may also lead to non-emission of solid waste of steel industry.
Furthermore, Chinese steel mills attach more and more importance to the application of direct reduction iron technology. For example, this technology has been adopted in a new project of
Baosteel.
Nevertheless, these new technologies cannot influence the normal operation of
scrap market in short term. It seems that the current market is prepared to move up steadily. With the price rise of finished steel in the future,
scrap prices will also see certain rebound. However, traders are taking a pessimistic attitude about the future market, and steel mills also try their best to curb the increase in
scrap prices.