China's first recycled steel cargo arrives after doors reopen; jitters ease

Singapore — The first cargo of recycled steel bought after China reopened its doors to ferrous scrap imports has arrived and been discharged, and initial market apprehension around whether it would pass customs inspections is easing.

This is happening at a time when the arbitrage window for China to import is reopening, with international scrap prices having slumped nearly 14% since the start of the year.

The Tong Mao 1, the vessel that transported the 3,000 mt shipment of HRS101 grade scrap, arrived at Shanghai port Jan. 23 from Kawasaki port in Japan, according to ship-tracking website VesselFinder.com.

The cargo marked the first transaction of what is termed recycled steel under China's new industrial standard, with China Baowu Steel Group unit Ouyeel having bought from Mitsui & Co.

The cargo was undergoing customs inspections as of Jan. 28, and may be cleared within a day, industry sources said.

Market participants said the cargo was being visually inspected, in line with procedures used by customs authorities in South Korea, Vietnam and Taiwan.

The deal has been closely watched by the global scrap industry for the level of stringency that Chinese customs authorities would apply. The uncertainty surrounding this has been an initial stumbling block to more transactions, and is now fading as the market gains confidence in the likelihood that the cargo will clear customs.

"Many have been waiting out for the first cargo to arrive before putting in anything firm and all seems to be going well from what we hear," a Vietnam-based trader said. "Our buyers also seem more confident to bid now as they were previously expecting customs to be extra strict on the first cargo."

The Mitsui-Ouyeel deal had been seen as largely symbolic, as Chinese domestic prices had been lower than international prices by nearly $60/mt, making imports uneconomical.

However, the arbitrage window reopened Jan. 28, with domestic prices lower than international prices for the first time since imports were permitted Jan. 1.

S&P Global Platts assessment of HRS101, the world's first price assessment for heavy recycled steel, was at $413/mt CFR China, down $59/mt, or 12.5%, from the first printed assessment of $472/mt on Jan. 4.

Offers for HRS101 from Japan were made at $420/mt CFR China, against a bid at $410/mt.

Chinese domestic heavy scrap prices at Yuan 3,220/mt delivered to Zhangjiagang (including 13% VAT) work out to $436.50/mt on an import parity basis, according to Platts calculations.