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FEATURE: China steel scrap prices to see moderate rise

The continuous downward adjustment seen in China’s domestic steel scrap market over the past month is likely to continue in April as steel mills’ scrap stocks may keep rising for some time, market watchers said Wednesday. But they suggested that if the next few weeks witness a sustainable rebound in finished-steel prices, the scrap market could experience moderate rises in mid- to late-April.

As of March 29, Mysteels steel scrap price index was at Yuan 2,493.9/tonne ($371.2/t) on delivery and including the 16% VAT, lower by Yuan 61.3/t or 2.4% on month, mainly due to the rising supply of steel scrap materials, Mysteel notes.

Last week, domestic major steelmakers lowered their procurement prices of steel scrap to reduce their production costs before the value-added tax (VAT) reduction formally kicked in on April 1, as Mysteel reported. The downward price adjustments forced scrap traders to quicken their deliveries to the works of steel mills, just in case prices decline further in the near term.

I think most scrap traders will gradually recover from the confusion that preceded the VAT cut,” a steel scrap market analyst from East Chinas Jiangsu province said. “Along with the end of the four-month winter output restrictions last week, the lower VAT is likely to further spur downstream steel demand,” he added.

As of March 28, the total of steel scrap stockpiled by the 61 steelmakers Mysteel monitors and which operate both blast furnaces and electric-are-furnace (EAFs) swelled by some 276,000 tonnes or 9.3% on month to hit 2.98 million tonnes. The stocks could last the steel mills for 15.2 days, or 1.4 days longer than last month, according to Mysteels latest survey published on March 29.

As a result, market transaction prices of 6-8mm common-grade carbon steel scrap in Zhangjiagang in Jiangsu province, the countrys core scrap consumption base, reached Yuan 2,350/t excluding the 16% VAT as of March 29, presenting a monthly decline of Yuan 70/t, Mysteels latest data showed.

As of now, it is still hard to see how the reduction in the VAT will impact the domestic steel scrap market,” remarked a scrap market player with nearly 30 yearsworking experience in the commodity. Much more time will be needed (but) in the long term, the VAT cut will be helpful to ease the steelmakerscapital flow and should stimulate traders’ buying demand,” Mysteel was told.

The capacity utilization rate at the 53 independent EAF steelmakers nationwide which Mysteel monitors surged by a large 19.84 percentage points on month to 61.05% as of March 28, while the capacity utilization rate among 247 BF steel producers still hovered high at 78.31%, despite a slight dip of 0.57 percentage point over the month, according to Mysteel's latest survey published on March 29. The findings indicate that domestic EAF steelmakers have gradually resumed their operations, as their profit margins have been steadily improving recently.

The scrap market analyst admitted it was unfortunate that last month known in Chinas steel community as Golden Marchfor the boom in business it usually brings did not produce the same substantial growth for the steel market overall as in previous years and that business remained sluggish. Nevertheless, he was still confident that steel scrap prices would see a slight rebound after a short-term downward adjustment in Silver April. Traditionally, March-April are peak months for steel sales in China, as the return of warmer weather during the period generally spurs an increase in activity on construction sites.

On Monday, Chinas largest EAF steelmaker, Jiangsu Shagang Group, decided to slash its steel scrap procurement prices by another Yuan 40/t effective from April 1 deliveries. Mondays price reduction is Shagangs third since the start of this year and took the mills total cut so far to Yuan 110/t, as Mysteel reported. After the adjustment, the East China steel giant is paying domestic scrap suppliers Yuan 2,540-2,640/t for HMS grade scrap on delivery and including 13% VAT.

Recently, Chinas steel market has shown signs of slight recovery. Mysteels national average benchmark price of HRB400 20mm dia rebar rose for a second day on Tuesday to reach Yuan 4,086/t including the 13% VAT as of April 2, gaining another Yuan 24/t on a daily basis, according to Mysteels latest data base. Tuesdays price is close to the years new high of Yuan 4,098/t recorded on March 21 which was higher by Yuan 170/t on year.

Written by Rebecca Zhu, rebeccazhu@mysteel.net.cn

Edited by Russ McCulloch, russ.mcculloch@mysteel.com