China opens door to ferrous scrap

Steelmakers in the People’s Republic of China will start 2021 with access to imported ferrous scrap newly redefined as a resource and with a former tariff barrier completely removed.

China’s Standardization Administration has confirmed that a roster of more than a dozen ferrous scrap grades (plus two stainless steel grades) have been approved as a “resource” for quota-free importation. Received shipments will be subject to inspection when arriving in Chinese ports, but not to a pre-inspection approval process.

That policy approval was quickly followed by another from China’s Ministry of Finance that will see a former two percent duty on imported ferrous scrap retired effective Jan. 1, 2021. According to Argus Media, the ministry also reinstated most favored nation status on the approved ferrous and stainless scrap resource categories.

The combination of policies seems to have been put in place to support increased electric arc furnace (EAF) steelmaking capacity being put in place in China. The EAF method is gaining favor both because China is generating more of its own ferrous scrap, and as a way to phase out integrated production as China tries to lower its carbon emissions level.

A report from Davis Index indicates steelmakers such as Rizhao Steel and Jiangsu Steel Group intend to import as much as 1 million metric tons of ferrous scrap in 2021. Before the Chinese government began restricting scrap imports, it often turned to suppliers from Japan and Australia, and is likely to do so again.

According to statistics gathered by the Ferrous Division of the Brussels-based Bureau of International Recycling (BIR), Japan exported less than 7.7 million metric tons of ferrous scrap in total in 2019 while Australia exported about 2.3 million metric tons. That same year, China was not even among the world’s 12 largest importers of ferrous scrap, falling below number 12 Belarus, which brought in less than 1.3 million metric tons of scrap.

Whether Chinese mills buy ferrous scrap off the United States Pacific Coast or not, the increased presence in the global market will likely place additional upward price pressure on ferrous scrap in 2021. Ferrous scrap prices in the U.S. closed out 2020 with an $80 per ton increase.

Scrap trader and consultant Nathan Fruchter of New York-based Idoru Trading says a large-volume re-entry of China into the global market “is not good news” for steelmakers, “as it will create a shortage of scrap amongst the current pool of scrap buyers.”

Predicts Fruchter, “As a result it will push scrap prices further up and also usher in higher steel prices. As goes scrap, so goes steel. Think scrap prices are high this New Year? Just wait until Chinese New Year.” In 2021, the Chinese New Year date is Feb. 12.