Import scrap prices in China hit bottom for now, restocking finishes in local market

After Jiangsu-based Shagang Group, China’s largest private steelmaker, cut in its scrap purchase prices by RMB 30/mt (4.6/mt) as of January 29, bearish sentiments have prevailed among scrap market players. Meanwhile, offers for import scrap from Japan have decreased sharply and hit the bottom for the near future, according to market sources.

Average domestic HMS scrap prices in China are at RMB 3,137/mt ($485/mt) ex-warehouse, decreasing by RMB 8/mt ($1.2/mt) compared to January 27, according to SteelOrbis’ information.

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

During the given week, the approach of the Chinese New Year holiday and the Covid-19 pandemic in China have exerted a negative impact on the local scrap market. The demand for steel has been sluggish amid the halt of construction activities. Most steelmakers have completed building up their stocks of scrap, though they hold an optimistic attitude as regards the prospects for scrap demand for after the long holiday.

The positive outlook is also connected with the latest suggestion by the China Iron & Steel Association (CISA) to increase the refund rate of the 13 percent value-added tax (VAT) applied on domestic prices to stimulate supply of steel scrap to satisfy the increasing demand in China. Currently, China’s tax authorities refund 30 percent of the VAT paid to buyers, while the government could consider increasing the refund rate to 70 percent. The cost of purchasing steel scrap may decrease by more than RMB 100/mt ($15/mt), according to sources, which would encourage steelmakers to use more scrap.

Sources said that late last week offer prices of ex-Japan HS scrap were heard at $405-410/mt CFR China, much lower than the tradable level at $445-455/mt CFR reported a week ago. Rumors of a deal at this range were not confirmed by the time of publication.  

Sources said that the reasonable price level for Chinese customers should be $400/mt CFR for this grade, taking into account the latest bid of Hyundai Steel for HS. Nevertheless, market sources have reported that prices have already hit bottom and will rebound to some extent in the near future. Some EAF-based producers in Japan have already started to increase their purchase prices and overall supply is not as high as earlier. As a result, the latest offers for HS from Japan have increased to a minimum $420/mt CFR China, according to sources.

Ex-US shredded scrap was at $430/mt CFR China last week, as SteelOrbis reported earlier and no fresh transactions have been heard so far.

$1 = RMB 6.4669