Mood in China’s scrap market more bearish, offer-bid gap narrows

As the prospects for developments in the scrap market in China remain unclear in the context of China’s commitment to reduce its crude steel output ahead of 2022, accompanied by a continued freefall in futures and iron ore prices, the local scrap market has shown divergent trends during the past week. Specifically, local scrap prices have been adjusted across regions in the country, mostly depending on the interaction between supply and demand. Overall, the narrowing of the gap between iron ore and scrap prices has continued to exert pressure on the scrap market, limiting the rise of scrap prices and, concurrently, encouraging Chinese steelmakers to lower their bids further. The wide geographical spread of the latest outbreak of the Delta variant of the coronavirus is presenting an additional challenge to local scrap suppliers.

Although buying activity in the import segment has remained barely visible, the gap between offers and bids has narrowed recently. Accordingly, by the middle of the current week offers for HS from South Korea to China have been heard at $550-560/mt CFR, down $20-30/mt compared to those voiced earlier. “The mismatch between offers and bids has remained, but it is getting smaller. It used to be $40-60/mt, now it is $20-30/mt. Once it reaches $10/mt, we will see trades concluded,” a key Asia-based trader stated. Offers of scrap from Russia at $540/mt CFR are said to be not of high priority for Chinese customers. Ex-Japan HS scrap has remained mostly unattractive due to the high price. Specifically, Japanese suppliers are said to be insisting on offering at $590/mt CFR.

Meanwhile, average domestic HMS scrap prices in China on August 17 have been fixed at RMB 3,705/mt ($571/mt) ex-warehouse, increasing by RMB 19/mt compared to August 11, according to SteelOrbis’ information.

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

$1 = RMB 6.4915