Chinese scrap prices likely to remain high in Sept

The stability of China’s steel scrap market is likely to continue and should keep domestic scrap prices hovering at their current high level, market watchers predicted Wednesday, observing that steel mills’ scrap demand remained firm for the time being. However, they also noted that the thinning margins that steelmakers are earning should prevent scrap prices from rising much higher.

Over the past month, China’s domestic scrap price index had increased by a total of Yuan 54.2/tonne ($8/t) on month to reach Yuan 2,595.7/t on delivery and including the 13% VAT as of September 1, or hitting a nine-month high, Mysteel’s data shows.

“I don’t think that domestic scrap prices will decline to any great extent, given the possible recovery of the finished steel market during ‘Golden September’ – usually a boom period in the steel business,” a Shanghai-based market watcher said. Traditionally, September-October are peak months for steel sales in China, as the retreat of the hot temperatures during the period generally spurs an increase in activity on construction sites.

On the other hand, the volume of steel scrap used by Chinese mills including both blast furnace (BF) and electric-arc-furnace (EAF) producers continues to hover at a relatively high level, with the daily consumption of scrap at the 61 steel works Mysteel monitors across China increasing for a seventh week as of August 27 to 3,349 tonne/day, higher by 5.4% on month.

In tandem, as of the same day the total stocks of steel scrap at the 61 surveyed mills had decreased for a fourth straight week, thinning by another 31,000 tonnes or 1.25% on week to hit a six-week low of 2.45 million tonnes.

“Previously, we had adopted a ‘fast-in’ and ‘fast-out’ approach to our business to ensure more profits. However, we have adjusted our delivery pace, as our capital reserves are sufficient now and we are not eager to accelerate sales,” a scrap supplier in East China’s Zhejiang province told Mysteel Global, adding that his firm had chosen a wait-and-see stance and was watching for further inclines.

“However, it will be hard for scrap to rise markedly this month, as currently, prices are staying high and so continue to squeeze the steelmakers’ profit margins,” the market watcher predicted.

For example, the faster pace of growth in scrap prices compared with rebar saw the price spread between scrap and rebar remain stable at Yuan 1,289.15/t as of September 1, nudging up by a tiny Yuan 11.6/t on month, according to Mysteel’s database.

This article has been published under an article exchange agreement between Mysteel Global and SteelMint Research.