Steel scrap prices are likely to fall with limited upward room, as supply grows and demand weakens.
Domestic steel scrap prices stood at 2,100 yuan/mt as of Friday June 8, up 80 yuan/mt over the week, compared to about 1,500 yuan/mt on average in 2017.
From 2010-2016, steel scrap output in China, including industrial scrap, stablised between 80 million to 100 million mt every year. From 2017, output grew sharply. China’s steel scrap output came in at 66.35 million mt in the first half of 2017, up 53.6% from a year ago.
As the government intensified its crackdown on ditiao steel, induction furnaces that used steel scrap were significantly affected. This lowered domestic demand for scrap steel.
Exports of steel scrap grew as domestic demand weakened. Exports of scrap steel registered a record monthly high of 508,120 mt in September 2017 after the figure broke 10,000 in April 2017. Smuggling became a concern as exports of steel scrap faced heavy tariffs. Chinese Customs said on June 6 that 65 smuggling rings have been caught in the crackdown on steel scrap smuggling worth some 4.8 billion yuan.
The focus on steel scrap smuggling is likely to weigh on exports, which is likely to drive up domestic supply. SMM also sees limited upward room for the scrap ratio of blast furnaces in China in the short term as the figure reached some 20%.