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China's resumption of scrap imports seen unlikely to help costs, EAF development

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China's resumption of scrap imports seen unlikely to help costs, EAF development

Highlights

Availability of scrap to import seen limited

EAF capacity growth forecast seen modest

Singapore — China's move to allow ferrous scrap imports to restart in January is likely to have a limited impact on domestic steelmaking costs, constrained by the lack of scrap available globally to import, market sources said Jan. 13.

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While the more optimistic sources said scrap imports could reach 10 million mt/year in 2021 if domestic steel margins remain strong, others expected the volume would be well below 10 million mt as recovering overseas demand for scrap has pushed up seaborne scrap prices.

"Even if there is policy support, scrap imports won't be too high as there is limited Asian scrap trade volumes," an east coast-based steelmaker said.

A Shanghai-based analyst thought China would struggle to import more than 1 million mt in 2021.

Based on privately-owned Chinese mill Jiangsu Shagang's latest bids for local heavy melting scrap, domestic prices would be around $439/mt on an import parity basis. Overseas offers for heavy scrap are currently above $500/mt CFR China, making imports unattractive to Chinese buyers.

Chinese steelmaker Baosteel purchased around 3,000 mt of heavy scrap from Japan in early January to kick start the import resumption.

While the volume of imported scrap seems unlikely to increase in the short term, growth for domestic scrap was also limited, market sources said.

China plans to increase domestic scrap supply to around 300 million mt/year by 2025, according to its 14th five-year plan for the iron and steel industry. Domestic scrap supply in 2019 was 240 million mt, according to the China Association of Metal Scrap Utilization.

This means the increase in scrap supply would only amount to about 10 million mt/year on average over the 14th five-year plan period of 2020-2025.

CAPACITY BOOST

S&P Global Platts estimates China's overall crude steel capacity – comprising converters and electric arc furnaces, or EAFs – will reach 1,285 million mt/year by the end of 2021, up 28 million mt/year from end 2020.

EAF steelmaking capacity alone will reach 196 million mt/year by end 2021, up 13 million mt from end 2020, Platts estimates.

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 Q4 2020 averaged 18%, up from 14% in Q3.

Some market sources said scrap prices, as well as iron ore prices, are likely to continue hovering at high levels throughout 2021 due to anticipated strong steel production stemming from expanding steelmaking capacity and robust steel demand from the economic recovery in China and overseas.

China's Ministry of Industry and Information Technology, or MIIT, is expected to issue more plans to lower steelmaking carbon emissions this year. China has pledged to become carbon neutral by 2060, and lowering the amount of pollution caused by sintering and coke production is seen as one way of helping to achieve this aim.

The steel industry is one of the biggest carbon emitting sectors, accounting for around 15% of the country's total, MIIT said. China's crude steel output would drop this year in light of the carbon emissions targets.

EAF steelmaking is seen as less polluting than traditional blast furnace production.

However, the Shanghai-based analyst said China could only achieve its carbon target by cutting crude steel output, rather than trying to switch to EAF production.