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Shagang cuts scrap price again, its fourth in a fortnight

Shagang Group (Shagang), China’s largest electric-arc-furnace (EAF) steelmaker, has lowered its steel scrap procurement price again, clipping another Yuan 50/tonne ($7.4/t) off buying prices for all grades effective from September 25. Shagang has now cut its scrap procurement prices no fewer than four times since September 14 by a total of Yuan 160/t, Mysteel Global notes.

With the latest cut, Shagang, headquartered in East China’s Jiangsu province, is paying collectors Yuan 2,640-2,700/t including delivery and the 13% VAT for domestically produced HMS grade scrap, according to its release.

“We didn’t expect that Shagang would reduce its buying prices so frequently,” a Shanghai-based market watcher commented. “The recent weakening in steel prices has severely pressed the profit margins of all steelmakers including Shagang. Thus, the mills have had to pass the profits squeeze they’re suffering along to raw materials suppliers including those selling steel scrap,” she added.

At present, the average gross margin that steel mills can enjoy producing rebar is around Yuan 200/t, which means that their net margin is less than Yuan 50/t, Mysteel Global understands.

On the other hand, though some scrap traders grumble that Shagang is being too aggressive with its frequent price reductions, they can’t dispute the bearish steel-market sentiment that prevails. The collectors and dealers have no choice but to deliver as much as they can to customers in case prices decline further, Mysteel Global notes.

On September 24, steel scrap deliveries to Shagang’s Zhangjiagang steelworks had increased by another 2.6% on day to average 23,302 tonnes/day, a market watcher close to the steelmaker observed.

Shagang’s scrap price cut Friday was immediately reflected in the spot market for steel scrap in Zhangjiagang, where the price of 6-8mm common-grade carbon steel scrap fell by Yuan 30/t on day to Yuan 2,370/t excluding the 13% VAT. It also triggered a round of similar scrap price reductions among another 25 steelmakers, mainly in East China, in the range of Yuan 10-50/t, according to Mysteel’s latest survey.

Written by Lindsey Liu, liulingxian@mysteel.com

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