MYSTEEL: Stable demand to support China steel scrap prices in Dec

Domestic steel scrap prices rebounded during November, with Mysteel's national steel scrap price index standing at Yuan 2,936.4/tonne ($414.8/t) including the 13% VAT as of November 30, gaining Yuan 43.7/t or 1.5% on month. Entering this month, the index had climbed further to Yuan 2,940.7/t as of December 4.

Compared with scrap prices, the prices of finished steel products rose much more rapidly last month, leading to a marked improvement in the profit margins of both electric-arc-furnace (EAF) and blast furnace (BF) steelmakers, Mysteel Global noted.

"Most EAF steelmakers saw their negative margins turn positive, and they could generally earn a profit of nearly Yuan 300/t on steel sales (when producing during off-peak times for electricity)," a market watcher in Shanghai said. "The healthy profits will keep the mills enthusiastic about production in the coming weeks," he added.

During the week of November 24-30, the average capacity utilization rate of the 87 EAF mills under Mysteel's regular tracking touched a more than seven-month high of 63.97% after rising for eight straight weeks.

BF mills are also feeding more scrap into their converters, according to Mysteel's other survey. During the last week of November, steel scrap consumption among the 130 BF steelmakers under Mysteel's coverage totalled 1.4 million tonnes, the highest since June last year.

"Considering the strong rise in iron ore prices, steel scrap is much more cost effective for BF mills," the market source explained. By end-November, the cost of making steel using scrap among integrated mills in East China's Jiangsu province stood at Yuan 2,613/t excluding the 13% VAT, lower by a large Yuan 300/t compared with that using hot metal, with the spread being the widest since July last year, according Mysteel's assessment.

Meanwhile, with daytime temperatures falling significantly across much of northern China, steelmakers will gradually start to restock raw materials including ferrous scrap for winter consumption this month, the market source pointed out. "This means that steel scrap demand will likely stay firm in December, so upward momentum still exists for scrap prices," he said.

On the other hand, steel scrap supply is seen tightening further this month since the cold weather will hinder outdoor operations of scrap processing companies as well as the transportation of scrap materials, Mysteel Global noted.

As of November 27, total inventories of steel scrap held by the 584 Chinese steel scrapyards qualified by the country's Ministry of Industry and Information Technology stood at 1.02 million tonnes, hovering around a 13-month low, according to Mysteel's tracking.

"However, steel demand from end-users is expected to weaken in December, which will exert pressure on prices of domestic ferrous products overall," the market watcher warned. "As such, the growth in steel scrap prices is unlikely to be significant," he predicted.

Written by Anthea Shi, shihui@mysteel.com

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