China’s steel scrap supply set to rise in Q4, usage to increase

China’s steel scrap supply set to rise in Q4, usage to increase

in Commodity News 27/11/2023

China’s steel scrap supply in the fourth quarter of 2023 is expected to be higher than the third quarter, mostly led by a gradual bump up in run rates by steel recyclers and amid government calls for renovation of “urban villages,” analysts and sources said in the week to Nov. 24.

Urban villages in China typically refer to projects built on rural lands falling in the purview of large cities. The latest government push comes in a bid to revive China’s economic growth, which has been weighed down by the ailing property sector. The property sector is the largest steel demand driver in China.

There is already a rise seen in scrap supply led by higher dismantling activities, industry sources said.

China also hinted that more steel scrap recyclers were expected to enter the steel recycling industry, which could improve the supply pipeline.
China’s Ministry of Industry and Information Technology said Nov. 22 that it has identified 135 steel scrap recyclers in the country meeting quality standards for entry into the scrap recycling sector.

Back in 2022, pandemic and weak economy weighed on steel scrap supply and demand in China.

China’s 2022 steel scrap output was 260 million mt, down 10 million mt from 2021, data from the China Iron and Steel Industry Association showed. Chinese steel sector’s steel scrap usage reached 210 million mt in 2022, down 16.19 million mt from 2021, according to the data.

Rising scrap usage
In all, 255 Chinese steel producers’ scrap usage in the week to Nov. 9 rose 6.1% on the week, reaching 512,000 mt, analysts at Hongyuan Futures said in a latest note.

Of that, 132 steel producers that use the long steel production process, consumed 257,000 mt scrap per day, up 7,900 mt, or 3.2% on the week, Hongyuan’s data showed. Long steel production uses lower amount of steel scrap and higher iron ore volumes as raw material.

Steel scrap can be used directly into electric arc furnaces without the requirement of raw materials such as metallurgical coal and iron ore, making the EAF production process shorter and more emission friendly.

Using one mt of steel scrap can save around 1.6 mt of iron ore, according to the China Association of Metal Scrap Utilization.

The EAF sector has been witnessing decent profit margins recently, leading some producers to hike production time, including producers in the Jiangsu province, according to China-based analysts.

In the week to Nov. 9, the run rate of 89 Chinese steel producers using the EAF process reached 70%, up 8 percentage points on the week, Hongyuan’s data showed.

Meanwhile, in the long term, China’s steel scrap usage is set to rise through 2025, as the country is looking to cut reliance on imported iron ore by using more scrap, analysts said.

Based on an expected 30% steel scrap usage ratio at China’s steel sector by 2025, the Metallurgical Mines Association of China, or MMAC, expected steel scrap usage to reach 330 million mt by 2025, which could produce around 330 million mt of crude steel.

In comparison, Chinese steel sector’s steel scrap usage ratio was 10% in 2015, which rose to 18.88% in 2020, according to the China Association of Metal Scrap Utilization.

Assuming steady domestic pig iron output, China could use 100 million-150 million mt more steel scrap to replace around 200 million mt iron ore by 2025, analysts at the MMAC said. This could lead to reduction of 160 million-240 million mt of iron ore imports by 2025, they added.

During 2016-2020, China’s dependence on imported iron ore remained above the 80% mark for five consecutive years, MMAC data showed.
Source: Platts