China’s Dalian Commodity Exchange plans to list shredded steel scrap futures by the end of 2020 as scrap use in steelmaking is expected to increase gradually over the next 15 years.
Shredded scrap has been chosen as the candidate for futures contract as it’s sold in a competitive market, has a high degree of standardization and uniform shredding, which allows it to be a realistic index for scrap values.
At present, pricing of scrap is almost entirely in the hands of steel mills as the proportion of scrap used by mills changes sharply depending on profitability, leading to volatility in scrap prices.
The physical and chemical specifications of the scrap futures contract are: bulk density ≥ 1 T / m3, mass fraction of shredded material with the longest side length over 200 mm ≤ 5%, impurity mass fraction ≤ 1.5%, metal yield ≥ 95%, chemical composition (s ≤ 0.05%, P ≤ 0.05%, Cu ≤ 0.20%, as ≤ 0.05%, C ≤ 2%, and the sum of residual elements except Si and Mn ≤ 0.6%.
At present, there are no unified standards for steel scrap and the mills’ standards are different from each other. It is mainly judged by the naked eye and experience. Spot market trade at present is based on tradition and reputation. The listing of steel scrap futures will accelerate the process of industry standardization.
East China will be nominated as the benchmark delivery area for steel scrap futures and North China as the alternative delivery area. East China consumes 53% of China’s total shredded scrap supplies and North China accounts for 16% of consumption. The price correlation between North and East China is high and there is spot trade between the two regions.
Delivery modes for the contract will be direct supply to mills and free on truck (FOT) basis, but will not include warehouse deliveries.
Steel scrap inventories are usually built up at processing bases or steel mills and there are no third-party warehouses.
China is encouraging the use of scrap in steelmaking to reduce the need for iron ore in the furnace burden to reduce waste and conserve energy besides cut down on the country’s over 1 bn t of annual iron ore imports.
According to an estimate by the Chinese Academy of Engineering, China’s steel scrap output will reach 290 mn t in 2025, 330 mn t in 2030 and 380 mn t in 2035. By 2035, around 40-50% of steel output will be produced via the use of scrap.
Photo credit- SCMP News
Leave a Reply