China’s scrap drive boost for recyclers

Worldwide demand for ferrous scrap as economies bounce back from the pandemic, coupled with China’s recent willingness to import certain grades, is helping to sustain higher prices in global markets, according to industry insiders.

In the longer term, China’s latest five-year plan pledges to cut domestic crude steel production capacity and boost the use of scrap-intensive electric arc furnaces which should benefit recyclers.

The themes were explored during the latest Bureau of International Recycling convention which is being held online because of Covid-19. The ferrous division session was told by Lee Allen, senior reporter at Fastmarkets, that China appeared to be reducing its reliance on iron ore while increasing imports of scrap and steel billets.

Allen said China’s steel scrap demand could jump 20 million tonnes this year while annual imports could be around 10 million tonnes, a figure last seen a decade ago. Fastmarkets’ analysis was that China’s crude steel production would peak next year.

After setting out indicators such as the doubling of steel scrap prices in Asia over the past 12 months and even sharper rises for billet, Allen suggested that China’s increasing demand for imported scrap would impact the markets. ‘Prices will have to continue rising to feed these markets – alongside the other growing Asian markets in Bangladesh and Pakistan.’

Cutting emissions

Jiak Lim, senior trader at Singapore-based Zhejiang Metals and Materials, believed China’s policies aimed at reducing carbon emissions would ‘definitely drive up prices globally for scrap’ and he advised exporters in the US and Europe to concentrate on moving shredded scrap and P&S (plate and structural) scrap to be confident of meeting the country’s tough import specifications.

But he warned they face competition from exporters in Japan and South Korea who are benefitting from the shorter sailing times from China. In March alone, according to Allen, Japan exported 31 496 tonnes of steel scrap to China – equivalent to more than 65% of total imports.

World prices

Meanwhile, Allen noted, the ‘very profitable environment for the steel mills in Turkey’ meant that by mid-May, the average rebar export/scrap import spread had risen from around US$ 148 a year earlier to US$ 247 per tonne. Researchers at Fastmarkets expected this spread to fall back to US$ 168 by December.

Allen also predicted that steel prices would edge lower in the coming months and that there was ‘greater downside for steel than for steel scrap’ during 2021. Tom Knippel of SA Recycling in the USA noted a previously unseen decoupling of new steel and scrap prices, adding that such high steel prices were not sustainable in the long term.
‘There’s still tightness,’ he said. ‘Ford has announced continuing shutdowns and as long as we have these shutdowns it will slow down the generation of prime scrap. The spread on prime to shred is too high at the moment.’

Denis Reuter of TSR Recycling in Germany said the situation in Europe was similar. ‘Generation of prime scrap is low in Europe while demand is still pretty high so this contributes to those high prices. Once generation of prime scrap increases in the future I would expect the situation to normalise maybe in the third quarter with prices coming down a bit. The present situation is not healthy.’

Scrap not waste

Reuter also acknowledged concerns over proposed changes to EU shipment regulations that would potentially limit exports of materials designated as ‘waste’ only to those facilities that operated with broadly equivalent health and environmental standards established within the EU. He insisted: ‘It is not realistic for a total ban of exports from the EU – I’m positive about that. But for the rest? We will see…’

BIR ferrous division president Greg Schnitzer of Sims Metal Management maintained the root of the problem was that steel scrap fell under the ‘waste’ definition in Europe.

‘What other commodity classified as waste has such a high value? The world has to wake up and put pressure on the European Commission to put on a scrap label. It is not waste.’

Reuter reinforced the view: ‘Scrap is a raw material and it should get the credit it deserves.’