China Waste Policy Could Make or Break the Global Ferrous Scrap Market

SEATTLE (Scrap Monster): China’s recent battle against waste imports into the country has proved a success, as August ferrous scrap imports fell to zero, a figure unseen for the past 20 years in the country, according to the latest customs figures.

Since late December 2018, China has been slowly isolating itself from the global scrap market. The restrictions on ferrous scrap imports are part of a pushback against the country’s prior, unwanted, role as a dumping ground for global waste.

But regional industry participants, including those in China, feel that ferrous scrap has been unfairly caught up in Beijing’s drive for a cleaner environment.

The restrictions have contributed to higher domestic scrap prices for its steel makers. At the same time, Chinese steel prices have been weakening, pushing mill margins down.

These difficult conditions for the Chinese steel sector have led at least one participant to appeal to the government for a change in regulation, in the hope that easing controls on imported scrap could reduce the pressure on margins.

China's Rising Scrap Demand

China’s consumption of ferrous scrap remained unmatched globally in the first half of 2019, hitting 101 million mt, up 13.4 million mt, or 15.3% from the same period in 2018. Last year’s consumption reached a staggering 188 million mt, according to figures from the China Association of Metal scrap Utilization (CAMU). This was six times that of Turkey, at 30 million mt in 2018, which holds the top spot among importers of scrap.

China’s scrap generation has been keeping up with its large appetite. In H1 2019, 116 million mt of scrap generated, up 13 million mt or 13% on the year.

Though isolated from the global scrap market though the recent restrictions, China remains a “sleeping dragon” that could potentially heavily alter the global balance if its policy changes. A brief rush of illegal exports of Chinese scrap in early 2017 had seaborne prices plummeting by 17% in East Asia – showing the impact of any sudden change in flows to and from the country.

The current year-long slump in the global scrap market saw prices hit two-year lows during September, with sentiment remaining dampened by depressed steel demand.

The Platts Turkish scrap index has fallen 38% since its 2018 peak in March. In East Asia, bulk scrap prices to the region marked a 36% fall in the same period, with a similar contraction of 34% seen for the containerized market.

Ferrous Scrap plays Catch Up After Steel's Dramatic Tumble

But while global scrap prices remain bearish, Chinese domestic prices have stayed high. Monthly prices for thick scrap, minimum width 6mm and delivered to Jiangsu steel mills, averaged at $387/mt this year to end-August, including 13% value added tax. Surprisingly, this was up by $16/mt from the 2018 years average, despite a drop in VAT from 16% to 13% that came into effect in April 2019. The thick scrap price closed at $378/mt on Sep 25, according to Platts data.

Courtesy: www.spglobal.com