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China agrees steel scrap criteria, eyes Jan 2020 start

China’s Ministry of Industry and Information Technology (MIIT), the country’s top governing body supervising all the industries, has officially approved classification criteria and standards for the domestic steel scrap industry, with the new system to formally take effect from January 1, 2020, according to a MIIT statement released on August 27.

Details are still to be revealed, but industry pundits are applauding the progress, saying that finalizing standards for the scrap sector will have wide implications, including for the launch of steel scrap futures.  

“These are standards for the whole industry, not only about steel scrap, and with this, the industry should function in a more orderly and systematic manner,” Li Shubin, executive vice president of China Association of Metallurgical Utilization (CAMU), told Mysteel Global on Thursday, adding, “standardising and coding of steel scrap according to quality and origins will greatly facilitate steel scrap quality checks, pricing and trading inside the country.”

MIIT didn’t disclose how many categories of steel scrap in its Tuesday’s document, while Li had told a national scrap conference last November that the new standards would classify over 20 categories of steel scrap and be comparable with those in use internationally, as Mysteel Global reported.

Despite the size of the industry, China still lacks a unified system for steel scrap classifications and those that Chinese steelmakers and scrap collectors are presently using are “crude and can hardly be compared with those of other countries,” according to him then.

Until now, the lack of commonly recognized and adopted standards has made it hard for buyers and sellers of scrap materials to agree on a price during transactions because each side will have a different definition in the quality, Li acknowledges.

“At the moment, tests for the quality and type (of steel scrap) are all just visual checks, without any third-party verification. Differences of opinion on quality and arguments over price occur frequently during scrap trading,” he noted.

CAMU and government bodies including MIIT have been working closely on finalizing the industrial standards, as well as reviewing steel scrap yards across China from aspects such as scrap processing capacity, environmental protection and workplace safety.

Since 2012, China had released six lists of qualified steel scrap suppliers, totalling 252 in number as of April this year, whose combined processing capacity tops 70 million tonnes/year, as reported.

“Introducing a uniform standard will help to concentrate the domestic steel scrap industry through acquisitions and mergers just like the steel industry,” suggested a scrap supplier based on East China’s Jiangxi province. “Also, those illegal and incompetent workshops will soon have to exit the business for the lack of qualifications as well as capital.”  

Just as crucially, sources contacted by Mysteel Global suggested that the adoption of formal standards for the industry may speed up the launch of steel scrap futures. “After implementing the new criteria, China’s steel scrap market will become more stable, rational and larger – all of which are the foundations of successful commodities futures contracts,” commented a Shanghai-based market insider. A mature futures product, as a common hedging tool, will allow domestic scrap suppliers to control their operational risks, he added.

In March this year, CAMU signed a strategic cooperation agreement with the Dalian Commodity Exchange in Northeast China’s Liaoning province to promote the launch of a scrap futures contract, as Mysteel Global reported.

China is the world’s largest steel scrap producer and consumer and has great potential to increase scrap utilization in steelmaking to match the much higher levels elsewhere in the world, Mysteel Global notes.

In the first half of 2019, China’s steel scrap consumption reached 101 million tonnes, up 15.3% or 13.4 million tonnes on year, though the ratio in total steelmaking was only at 20.5%, according to statistics from CAMU, chiefly because blast-furnace steelmaking remains the dominate process among the country’s steel enterprises.

Chinese scrap industry insiders will be keenly awaiting details of the new classifications and, just as keenly, how the changes will be rolled out. “I am afraid the system’s implementation will increase our costs,” a scrap supplier from East China’s Anhui province had told Mysteel last November. “We will have to send our products to a third party for classification and obviously, our buyers will not be willing to cover the added cost,” he pointed out.

Written by Lindsey Liu, liulingxian@mysteel.com, Venus Wang, wangyi@mysteel.com, and Hongmei Li, li.hongmei@mysteel.com

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