China ruffles regional sentiments as scrap standards launch draws nearer

Singapore — Sentiments in the seaborne scrap market were widely mixed amid China's release of a notice on its much-awaited ferrous scrap standards in the week of Dec. 20, bringing the country a step closer to the reallowance of ferrous scrap imports.

Ferrous scrap will be dubbed "Recycling Iron-Steel Materials" and categorized into seven groups comprised of: I. Heavy-duty recycled iron and steel raw materials, II. Medium-sized recycled iron and steel raw materials, III. Small-scale recycled steel materials, IV. Broken recycled steel raw materials, V. Lump-type recycled steel materials, VI. Alloy steel recycled iron and steel raw materials, and VII. Cast iron recycled steel materials, according to a notice from the Metallurgical Industry Information Standards Institute released Dec. 21.

The standards, which were drafted by various related bodies such as the Metallurgical Industry Information Standards Institute, China Scrap Steel Application Association, customs and environmental agencies, and various China steelmakers and traders, will be officially implemented Jan. 1, 2021 allowing for a standardization of the commodity that relies mostly on a visual grading system.

Ahead of the launch regional sources voiced varying views, with scrap sellers elated about a possible increase in overall demand, while regional buyers were largely worried, as Chinese competition could potentially provide support to prices that were already at multi-year highs.

Japanese H2 FOB scrap prices assessed by S&P Global Platts were at Yen 44,200/mt Dec. 23, rallying 62% from a trough in early October and breaching the index's historical highs, Platts data showed.

"Overseas prices have gained so much in these last few months it's not as attractive to import as before," a Chinese steelmaker said. "There used to be a big arbitrage [against local prices] which has now closed up because global markets became so bullish."

While arbitrage between imported and local scrap was cited as a primary reason to lobby for import reallowance, other factors such as standardizing the nation's expectations of scrap grades and introducing better scrap quality were also cited by local sources as important considerations.

Meanwhile, regional sellers were heard gearing up for China's reentry into the import market, with some already heard in verbal negotiations with mills to secure trial shipments for when imports were officially allowed, sources said.

"We have been linking up with mills in North and East China, with many interested to try out some test shipments when imports are allowed," a Taiwanese trading source said. "China is a huge consumer of scrap and its presence could shake the market, but I doubt they will come in very aggressive at the start."

Prior to the notice, China had been seen isolating itself from the global scrap market to ward off the nation's unwanted role as a dumping ground for global waste, introducing restrictions and bans on ferrous scrap imports effective Dec. 31 2018.

The lack of access to imported scrap then contributed to comparatively high domestic scrap prices for its steelmakers through 2019, which led local industry participants to petition for the reallowance of imports.