Posted on 07 Nov 2023
After the decline in October, China's steel scrap prices are expected to strengthen this month, as domestic scrap demand is seen picking up while the prices of finished steel products are likely to firm, according to Mysteel's survey.
The country's steel scrap prices retreated significantly in October as steelmakers lopped their scrap buying prices to shave their production costs, Mysteel Global noted.
As of October 31, Mysteel's China steel scrap index stood at Yuan 2,892.7/tonne ($406.4/t) including the 13% VAT, lower by 2.9% from the end of September. Entering this month, the price index has started a rebound and had risen to Yuan 2,899.7/t by November 3.
"Domestic blast furnace (BF) steelmakers were generally struggling with negative margins last month, and to cut losses, many mills chose to scale back production by reducing the scrap ratio in their feed materials later in the month," the analyst added.
During October 2-27, the weekly consumption of steel scrap among the 221 domestic BF and electric-arc-furnace (EAF) steelmakers under Mysteel's regular survey averaged 2.6 million tonnes/week, 2.8% lower compared with the weekly average during September 4-29.
"The slide in scrap prices, plus the decline in steelmakers' scrap consumption, pressed domestic scrap processing companies to speed up sales," the analyst noted. "They had to reduce their own scrap inventories to avoid financial risks," he explained.
As of October 25, total steel scrap stocks held by the 584 Chinese steel scrapyards qualified by the country's Ministry of Industry and Information Technology had fallen to 1.03 million tonnes, lower by 4.7% on month and refreshing the lowest level since October last year, according to Mysteel's tracking.
Nevertheless, China's steel scrap demand is expected to pick up this month as domestic EAF steelmakers have become more active in production after seeing their margins recover steadily, Mysteel Global notes.
On November 3, the average loss on sales of construction steel being incurred by the 40 independent EAF mills under Mysteel's daily tracking had narrowed to Yuan 55/t, significantly smaller than the average Yuan 121/t loss they were suffering on average on October 7.
Under such circumstances, over October 27-November 2, the capacity utilization rates of the 87 Chinese EAF mills under Mysteel's weekly survey averaged 53.05%, gaining 4.79% on month.
"Currently, the price performance of finished steel products is better than that of steel scrap, and this is likely to encourage EAF mills to continue ramping up production this month to secure their profits," the analyst believed.
Meanwhile, considering that the prices of iron ore – the dominant steelmaking material in China – are still hovering at a high level, the prices of finished steel products are expected to firm further on the support of ore costs, he added. The price increase will be limited though, as actual steel demand remains flat, he warned.
"Domestic steel scrap prices may also strengthen overall within a limited range in November, since they usually follow a similar pattern of finished steel price movements," he predicted.
Source:Mysteel Global
