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China eyeing restart of ferrous scrap imports in H1 2021, says trade

Singapore — China is likely to allow the resumption of ferrous scrap imports from early 2021, or at least no later than June, market sources close to the issue said Oct. 27.

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Chinese authorities banned such imports in July 2019 due to environmental concerns, but have been pushing for a resumption with stricter controls since May, deeming scrap a recyclable resource that will reduce polluting emissions during the steelmaking process and align with efforts to decarbonize the economy.

Some industry sources are also calling for scrap imports to resume because steelmakers are grappling with tight domestic scrap supply as the country's steelmaking capacity increases.

But even with scrap imports, the total volume of scrap available is expected to be insufficient to reduce China's steelmaking costs as its capacity continues to grow.

S&P Global Platts estimates that China's overall crude steel capacity – comprising converters and electric arc furnaces, or EAFs – will reach 1,257 million mt/year by end 2020 and 1,281 million mt/year by end 2021, up from 1,243 million mt/year at end 2019.

EAF steelmaking capacity will reach 184 million mt/year by end 2020 and 197 million mt/year by end 2021, up from 175 million mt/year at end 2019, Platts estimates. Most of the new EAFs will be located in Sichuan, Fujian and Guangdong provinces.

The scrap ratio in Chinese converters can be boosted to as high as 20%-30% in a bid to maximize steel production when steel margins are good, while EAFs consume mainly scrap. The scrap usage in converters surveyed by Platts in Q3 averaged 14%, down from 16% in Q2.

Sources said Chinese domestic scrap was currently around Yuan 400/mt ($60/mt) higher than overseas material with freight costs and taxes included. But once China starts to import, overseas prices were expected to increase rapidly, making the arbitrage opportunity short-lived, they said.

S&P Global Platts Metals Trade Review:


Some market sources said any resumption of China's scrap imports was unlikely to surpass the annual peak of 13.7 million mt recorded in 2009, even though the country's steelmaking capacity was now far greater, as standards were expected to be strict, which would limit the volume.

However other sources said imports could touch 20 million mt/year if domestic steel margins were strong, but any greater volume would likely drive overseas prices higher than domestic ones and erase imports' competitive edge.

China's scrap imports have declined steadily since peaking in 2009 due to an increase in domestic scrap supply and decrease in prices. Scrap imports averaged 2.14 million mt/year over 2014-2018 before plunging to 180,000 mt in 2019, when the ban on imports was imposed mid-year.

China is currently moving to reclassify ferrous scrap as a recyclable resource so it would no longer count as waste, and therefore be subject to the import ban.

"Compared with the volume of iron ore imports or domestic scrap supply, even if scrap imports were to reach over 20 million mt annually, they would still be too marginal to really impact the Chinese steel market in terms of production costs or steel prices," one source said.

The country imported 1,068 million mt of iron ore and generated about 240 million mt of ferrous scrap in 2019, data from China Customs and the China Association of Metal Scrap Utilization showed.

China's demand for raw materials is likely to increase further in 2021 due to expansions in iron and steel making capacity of 17 million mt/year and 24 million mt/year, respectively.

However the seaborne scrap market, which is expected to be open again to Chinese steelmakers in 2021, could increase scrap supply only marginally, market sources said.