Escalating the trade war with US, China’s Ministry of Commerce has recently announced imposition of a 25% tariff on US scrap. According to updates on this, this would take effect from August 23, affecting various grades of iron and steel scrap under the HS tax codes 72041000, 72042100, 72042900, 72043000, 72044100, 72044900 and 72045000. Apart from ferrous scrap, China has imposed tariffs on non-ferrous, paper and plastic scrap exported from US. The country aims to stop being the dumping ground for the world’s garbage.
What would be the likely impact on global market?
1. Fall in ferrous scrap exports from US to China – There is no doubt that these tariffs will impair the already diminishing scrap exports from the United States to China.
However, market reaction was mixed on the impact of China’s tariff on imports of scrap. Some Chinese market participants moderated the impact, saying imports of US ferrous scrap had been declining anyway. The move would not have much of an impact as Chinese steelmakers haven’t been buying a significant volume of US scrap for some time now due to its high price.
In H1 2018, China was the fifth largest buyer of US ferrous scrap, having bought 418,063 MT occupying 5% share of the 8.2 MnT ferrous scrap US exported, as per data maintained with SteelMint.
U.S. exported a total of USD 5.6 billion worth of scrap commodities to China in 2017. Through the first six months of 2018, the total of U.S. scrap exports to China was USD 2.2 billion, a decrease of 24% from the same time frame last year.
2. Increasing imports from other suppliers – On the other hand, few scrap consumers turn apprehensive with imposition of import tariffs on US scrap as it is assumed that other regions may not be able to fulfill all of China’s demand.
3. Falling overall imports in China on environmental reasons – According to customs data maintained with SteelMint, in 2017, China imported 3.18 MnT of ferrous scrap out of which 11% share i.e. 0.35 MnT was imported from US. Followed by largest supplier Japan, US stood as the second largest scrap exporter to China.
China ranked 12th among US scrap export destinations in June, with the traded volume of 12,200 MT, the lowest since March 1998.
In H1’2018, China imported 860,000 MT of ferrous scrap, down 57% Y-o-Y, A breakdown by source country was not available as Chinese customs have stopped publishing the data since April.
The decline in imports was largely due to China’s tightened restrictions on the import of foreign waste material for environmental reasons.
4. Increasing domestic scrap consumption may lead to further hike in prices – As the world’s largest ferrous scrap consumer, China consumed 148 MnT of last year, up 64% Y-o-Y, according to the China Association of Metal Scrap Utilization. With increasing restrictions on imported scrap Chinese domestic scrap consumption likely to increase sharply in upcoming days.
The Washington-based Institute of Scrap Recycling Industries said the Chinese commerce ministry’s announcement has “caused consternation among Chinese consumers of US scrap commodities.”
It is to be noted that Shagang Steel has hiked scrap purchase price twice by USD 15/MT and by USD 22/MT recently. now it is expected that domestic scrap prices may strengthen further.
Impact on non-ferrous scrap industry – Chinese copper fabricators and importers are scrambling to divert or resell cargoes of U.S. copper scrap en route to China to avoid paying new high duties. US remained second largest copper supplier to China after Hong Kong in 2017, exporting 535,371 MT worth roughly USD 1.8 billion. Hong Kong supplied 627,180 MT copper scrap in 2017, according to Chinese customs data. Thus, non-ferrous industry also likely to witness impact of this in upcoming days.
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