MYSTEEL: China's scrap sector must adjust business models as market shifts

"Though the overall positive trend in the domestic economy remains unchanged, steel scrap industry participants – who have weaker risk-resistance capabilities compared to steel mills – have found themselves in a more challenging situation amid international turbulence and insufficient domestic momentum," a market analyst based in Shanghai commented.

Mysteel's survey showed that during 2023, the profits earned by Chinese steel scrap processing companies were only about half those of previous years, while around 80% of the companies surveyed were suffering negative margins.

Steel demand from China's crucial real estate and infrastructure sectors has been sluggish due to the slow progress on projects, as reported. Consequently, domestic steel mills have shown decreased willingness to purchase steel scrap as they are less enthusiastic about production, Mysteel Global noted.

Under such circumstances, "domestic steel scrap industry players should enhance their competitiveness by innovating business models to avoid being phased out by the industry," the Shanghai analyst suggested.

For example, large-sized scrap processing companies may consider establishing "industrial parks", where they can expand their business beyond scrap processing to include activities such as vehicle dismantling, the analyst argued. They may also reduce operating costs by developing more advanced dismantling and scrapping technologies, she added.

As for the medium- and small-sized scrap processors that lack financial support, they can refine their technology in dismantling mass-market consumer goods in the manufacturing industry such as household electrical appliances, according to the analyst.

The manufacturing industry holds significant potential for steel scrap supply, particularly as China is currently experiencing a peak in household appliance disposal. Earlier this month, the central government rolled out detailed plans to encourage the replacement of domestic household appliances such as refrigerators, air conditioners, and TVs, as reported.

According to Mysteel's statistics, around 100-120 million units of obsolete household appliances are discarded annually in China, with the average annual growth rate being 20%.

"As their business environment becomes more fragmented, domestic ferrous market participants are facing numerous challenges," the analyst said. "Technological innovation and industrial upgrading will help enterprises discover new opportunities," she stressed.

Written by Anthea Shi, shihui@mysteel.com

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