Davis Index: Market Intelligence for the Global Metals and Recycled Materials Markets

The Chinese government has amended its laws which completely banned hazardous solid waste to allow ‘recycled raw materials’ with new standards. The move will aid imports of steel scrap that meet industry standards officially allowed under the new steel scrap policy effective Jan 1. The policy has already received a green signal from the China Iron and Steel Association but awaits final acceptance and a detailed description of the ferrous scrap grades allowed by the Chinese government. 

ISRI had made suggestions on the broader categorization of ferrous scrap and allocation of a custom code before shipments on Dec 12. These suggestions could be ratified by the government in the coming days. 


The new standards, officially known as “recycled iron-steel raw materials“, broadens the range of steel scrap that can be imported, but restricts the maximum content of harmful impurities such as sulfur and arsenic, according to a statement from the State Administration for Market Regulation (SAMR). 

SAMR also added that there is an insufficient supply of domestic recycled iron-steel raw material in China, causing a surge in prices. The move will ease the shortage and lower input costs. 


Efforts to tackle soaring iron ore prices 

The world’s largest iron ore consumer is gearing up to increase its consumption of ferrous scrap procured domestically and from overseas. As a result, iron ore imports, prices for which have recently skyrocketed to seven years high, could decline. The rise had already impacted margins for many steel producers, especially those producing steel through blast furnaces. 

Allowance of imports of scrap steel shows the CISA has taken the surging global iron ore prices seriously. This move solidifies a potential support factor for high-end, low-residual scrap, heading into 2021, believes Cleveland-Cliffs.


Increase in scrap inquiries from Chinese buyers 

In anticipation of the move, inquiries for ferrous scrap increased from China. Buyers are also looking to import bulk vessels from the US and Japan. The top US bulk ferrous scrap suppliers and Japanese bulk scrap traders have received formal requests from Chinese mills, Davis learned from its sources.

Mills in China have an appetite to import as high as 10mn mt of ferrous scrap per annum, which indicates the country would need bulk cargoes too. Japanese scrap prices which have recently surpassed JPY40,000-41,000/mt ($387-397/mt) fob Japan for #2 HMS in bulk cargoes, could stay high into Q1 2021, commented Tokyo steel’s officials. 


Most electric arc furnace owners are looking at ferrous scrap as a major feedstock to ramp up their production in the coming days. The Chinese government is targeting a 100pc increase in secondary steel production by 2025, which could be as high as 100mn mt.

In 2020, the Chinese government had restricted imports of ferrous and non-ferrous scrap through a quota system. The total quota for metallic scrap was pegged at 24,450mt. The earlier quota system has been abolished on Nov 1, with the likelihood of new rules coming into effect on Jan 1 for both, ferrous and non-ferrous scrap. 


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