China: Shagang Group cuts scrap purchase price further on global cues and weak demand

Eastern China’s largest EAF mill – Shagang steel has reduced its scrap purchase prices for all grades today by RMB 30/t ($5). Currently, scrap price for HMS (6-10 mm) stands at RMB 3,190/t ($493), inclusive of 13% VAT, delivered to headquarters. Prices of other grades, including HMS (10-20 mm) thickness stands at RMB 3,220/t ($498) and HMS (not less than or equal to 20 mm) thickness, stands at RMB 3,250/t ($502). 

The company has cut its scrap purchase prices for the second time today. This week prices have corrected by up to RMB 60/t ($9). The decline in domestic steel prices, imported scrap offers and weaker Chinese steel market sentiments have resulted in scrap price cuts. 

• Japanese scrap prices fall sharply on lower bids – The softening of Japanese domestic scrap prices had begun in mid-January and has now accelerated over the past week, especially in the Kanto area around Tokyo, due to falling demand from mini-mills in the region. Scheduled plant maintenance and electricity issues were cited as key reasons behind the price cut. Tokyo Steel’s domestic scrap purchase price for Utsunomiya has fallen by up to JPY 7,000/t ($67) so far in this week. Meanwhile, export offers for Japanese scrap have also dropped by around JPY 5,000-6,000/t w-o-w.
  Japanese scrap has turned a major area of interest for Chinese mills apart from US and Europe after government lifted restriction on scrap imports for few grades. 
• Spot iron ore price declines sharply on demand lull ahead of Chinese holidays – Spot iron ore Fe 62% fines price fell sharply by $9.35/t yesterday to settle at $156.2/t CFR China. Weaker sentiments on limited buying before Lunar New Year holidays weighed on the prices. Sources also pointed to potentially lower iron ore imports by China in CY’21, driven by a target to reduce annual crude steel output as another price dampener. 
• China’s benchmark iron ore futures fall by RMB 55.5 – Dalian’s most-active May iron ore futures contract yesterday fell by RMB 55.5/t to close at RMB 985.5/t on sluggish pre-holiday consumption. SGX iron ore futures Feb. contract also dropped by $8.5/t to $154.5/t. 
• Rebar futures in China fall sharply – SHFE rebar futures May’21 contract marked a decrease of RMB 110/t in yesterday’s trading and closed at RMB 4,275/t.
   

Outlook – China’s scrap price may observe corrections in the short run amid current weak demand.