The global scrap industry is awaiting the impact on Chinese govt. newly set standards on ‘recycled raw material for steel making’. Although the standards have been announced, which will be implemented from Jan’ 21. This move is likely to boost Chinese ferrous scrap import volumes which have fallen drastically in last couple of years.
SteelMint conducted a webinar on 21 Dec’20 and the speakers were Mr. Tao Jiangshan, Deputy Secretary General of CAMU) , Mr. Abhijeet Mahanta, Head Ferrous – European Metal Recycling (India, Bangladesh), Mr. Henry Liu, Head of Iron Ore Analytics, Mysteel, China, Mr. Arshdeep Singh, Director, Vital Solutions Pte Ltd, Singapore, Ms. Nishtha Mukerjee, GM – Iron ore & Scrap, SteelMint, India. The key takeaways are mentioned below:
What is the scrap import policy all about?
The new standards will support the rising demand for ferrous scrap in China and will introduce the nationwide classification and regulation of high-quality scrap, according to the China Metallurgical Information & Standardization Research Institute. If the import is resumed, the monthly volume to China maybe around 1 mn t or 12 mn t yearly, and leading steelmakers such as Baowu, Shagang, and Rizhao would see monthly imports reaching 0.15- 0.20 mn t.
Benefits of new steel scrap standards –
- To promote the recycling and consumption of ferrous scraps, energy saving, reduced pollution emission
- To implement this standard is in line with the spirit of “Environment pollution prevention act” and regulate the solid waste import
- To regulate and improve the recycling level of scrap both inside China and overseas, setting the stage of fully tapping the scrap resources and explore the substitutability of iron ore
- Favourable to the finest adjustment in long & short route steelmaking structure, improving the industrial fundamental
Impact of new scrap reforms may be seen after Mar’21- Although the new set reforms will be implemented from 01 Jan’21, since most of the steel mills need time to identify suitable sources and unpredictability of the impact brought by COVID-19 overseas may consume 3-4 months to see actual impact of it.
An increase in Chinese steel scrap imports will also have a knock-on effect on iron ore market which also increases the bargaining space for iron ore buyers in China because there will be greater volumes of raw materials available to Chinese mills.
Japan could turn a potential scrap supplier to China – Chinese buyers would likely to focus more on higher grade scrap grade such as PNS and Busheling. The gap between higher grade and lower grade scrap prices would likely increase. Previously Japan remained the largest scrap supplier to China. China imported around 2.32 mn t of ferrous scrap in CY’17, out of which the share of Japan was 80%.
And with upcoming reforms, Japan may again turn a potential scrap supplier to China. Japan also remains the preferable market for scrap in emerging countries like Bangladesh and Vietnam.
China’s dependence on iron ore imports likely to come down- Chinese steelmakers expect to import initially around 6-7 mn t of scrap annually. In addition to it, there may be 12-15 mn t of additional domestic scrap supplies in China. These in total may replace around 30 mn t of iron ore imports, after the new policy endorsed in next 3-5 months.
Global scrap prices likely to strengthen further– With the currently imported scrap uptrend price scenario, the Chinese imported scrap market would likely open up with the hike of a minimum $20.
Container freight rates less likely to come down drastically – Due to limited availability of empty containers, less orders of new containers and around 40,000 containers were stuck at Felixstowe port in the UK led to increasing freight rates. Furthermore, some shipping lines have canceled their voyages till Feb-end worsening the situation further. These concerns are less likely to get resolved in the near short term and hence freight rates may remain elevated.
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