Since September, the continued production restrictions in China and power supply limitations, aiming to curb environmental pollution during the winter heating season and in the lead-up to the Beijing Winter Olympics 2022, have rippled across the Chinese metallics market particularly hard and concurrently, have exerted negative pressure on its buying activity. Specifically, China's crude steel output in September fell to the lowest level since December 2017, to 73.75 million mt, down 11.4 percent month on month and down 21.2 percent year on year, according to the National Bureau of Statistics (NBS). Until the production restrictions are effective, scrap and pig iron imports in China are hardly to rebound, even taking into account that the above-mentioned kinds of metallics are considered of a lower carbon footprint. A combination of a few more factors has been affecting the imports of pig iron and scrap to China so far. Accordingly, the economic viability of imports over domestic supply has notably muted the buying. Higher offers from the suppliers, stemming from the imbalance of demand and supply in the global market and concurrently, exorbitant freight rates made imports largely unattractive.
Moreover, a discrepancy between offers from global basic pig iron (BPI) suppliers and bids voiced by Chinese customers is likely to continue to exert the additional negative pressure on the activity. Following the dramatic drop in futures prices in China in the second half of October, the situation has deteriorated further. While local pig iron has been available at RMB 4,350/mt ex-works, translating to around $601/mt, excluding 13 percent VAT, Chinese customers have been seeking to pay for basic pig iron (BPI) hardly above $560-570/mt CFR for imports, with some buyers having started voicing $525-540/mt CFR levels as their bids. “I do not think there is any hope for pig iron at all, with a Chinese import market having gotten completely destroyed recently,” a major Asia-based trader shared its view. While global BPI suppliers have stepped up their efforts, any chance to get such prices for Chinese customers is hardly possible. Specifically, despite the latest level for ex-CIS BPI has been fixed in deals at $530/mt FOB Black Sea, with the material to be shipped to Turkey and Italy, the suppliers have started to voice offers at $600-605/mt FOB Black Sea more and more often in their current offerings. Brazil-based BPI suppliers, in their turn, are in the market with offers at $510-515/mt FOB, for January shipment, which taking into account the freight rate at around $70/mt and long lead time would be unworkable for Chinese customers.
Meanwhile, the situation in scrap segment has proceeded likewise, with prices from the key suppliers, above all from Japan being unacceptable for Chinese customers as for now. Specifically, Japanese scrap suppliers have continued to increase export quotations, aiming to take all the advantages from firm demand and higher prices locally. Taking into account the outlook for the nearest future, Japan-based scrap suppliers are hardly to offer attractive prices to China up to the end of the current year, continuing to enjoy favorable market environment in the local market. In the fourth quarter of the current yea, the Japan’s crude steel output is expected to rise to 24.11 million mt, up by 9.6 percent year on year and 0.8 percent from the July-September quarter, according to the Ministry of Economy, Trade and Industry (METI). On balance, while ex-Japan scrap has been barely available at below $600/mt CFR lately, Chinese steelmakers have preferred to secure material locally. The latest average domestic HMS scrap price in China was at RMB 3,821/mt ex-warehouse, translating to around $524/mt, excluding 13 percent VAT. According to the latest Chinese customs data, in September China imported 20,519 mt of ferrous scrap, decreasing by 49.4 percent compared to 40,540 mt in August.