- EAF mills cut output due to losses, limiting scrap demand
- Seasonal disruptions in scrap collection may cap price drop
Mysteel Global: Chinese prices of ferrous scrap are expected to continue trending down under the pressure of waning demand among steelmakers, according to Mysteel’s latest report on the market. The price decrease is likely to be moderate, though supported by the persistently tight scrap supply.
Domestic steel scrap prices in June generally lost ground from the prior month to hover at low levels, with the national composite price index averaging RMB 2,370/t ($330/t), including 13% VAT, over 2-30 June, down by 2% from the average price in May.
Entering this month, scrap prices briefly strengthened in the first week on improved market sentiment, but soon the weakness in market fundamentals dragged them down again, Mysteel Global noted.
With China’s steel market fully headed into the summer lull, domestic mills, including both blast furnace (BF) and electric arc furnace (EAF) ones, will likely rein in their steel production this month.
Mysteel’s survey showed that by the first week of July, the average capacity utilisation rate among the 90 sampled independent EAF steelmakers stood at 51% after falling for six weeks straight. Production at mini-mills has been dampened mainly by their hefty losses on steel sales.
On the other hand, BF mills still prefer to use hot metal rather than steel scrap for production due to the wide price gap between the two steelmaking raw materials, Mysteel’s other survey showed.
By 9 July, the cost of steelmaking using steel scrap among integrated mills in East China’s Jiangsu province averaged RMB 2,133/t ($298/t), excluding the 13% VAT, higher by a large RMB 182/t ($25/t) compared with using hot metal, according to Mysteel’s assessment.
Against this backdrop, steelmakers are expected to become more cautious about buying steel scrap, adding pressure on scrap prices this month.
Nevertheless, scorching summer temperatures and frequent rainfall across the country may continue to disrupt the sorting and processing among domestic steel scrapyards and impede road transportation, leading to tight scrap supply in the market.
As a result, while scrap prices may weaken further in July, the downside is expected to be limited by the ongoing supply constraints, the report concludes.
Note: This article has been written in accordance with a content exchange agreement between Mysteel Global and BigMint.
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