BIR Convention: Ferrous flows into Asia play key price role

Steelmakers in China have not surged into the global ferrous scrap market in 2021, but panelists at the online Bureau of International Recycling (BIR) World Recycling Convention Ferrous Division meeting said initial tests have shown scrap is making it through the inspection and customs process.

Lim Kok Jiak (LKJ), a senior bulk trader based in Singapore with China-based Zhejiang Metals & Material Co., said he and other buyers shipping to China have purchased materials predominantly from Japan and South Korea because of the proximity of those markets, and familiarity with companies doing business in those two nations.

Because Japanese and South Korean steelmakers (who also trade scrap) tend to have offices in China, buyers based in that nation “feel very safe to buy from them,” said Lim. With the Chinese government having created its own new ferrous scrap standards not yet familiar to the rest of the world, “We wanted to work with big companies,” said Lim, so if questions arose, “We know who to find.”

Lim said Chinese buyers are largely satisfied that higher grades of ferrous scrap can now make it into China, although he also characterized buyers there as price-sensitive, and wiling to stay out of the global market if sufficient domestic scrap can be procured within China—even if it is of a lower quality.

Future buying from China could be more aggressive, said Lim. “Going forward, China is encouraging this carbon neutrality,” he commented. In addition to more electric arc furnace (EAF) capacity being added, even operators of basic oxygen furnace (BOF) mills and blast furnaces are looking at ways to increase their scrap use. “I think it will definitely drive up prices globally for scrap,” he remarked.

Shippers from the United States and Europe will likely be approached by Chinese mills, who back in 2009 brought in some 26 million tons of ferrous scrap. As they return to the market with new government-imposed standards, Lim recommended sellers first “try plate and structural [P&S} and shredded” grades, as “these two materials have already been cleared” at some ports.

Initially, the Chinese government wanted laboratory-generated chemistry reports to accompany ferrous scrap shipments, but “now exporters can produce this certificate themselves,” said Lim. He said for shippers to reach the newly-scrap hungry BOF mills in northern China, they may want to consider shipping to the ports of Tianjin or Qingdao, adding that Tianjin port and customs officials may be more familiar with scrap.

Lee Allen, a senior price reporter with Fastmarkets, said if China started importing from 5 million to 10 million tons per year of ferrous scrap, it would have a significant impact. That is partly because buyers in several other Asian countries—including Bangladesh, Taiwan and Vietnam—already are putting pressure on global supply.

In his June 1 Ferrous Division presentation, Allen portrayed the doubling of ferrous scrap prices between early 2020 and mid-2021, but noted that some steel prices had tripled or quadrupled, creating impressive steel industry profit margins. That circumstance also was noted by panelists Tom Knippel of U.S.-based SA Recycling and Greg Schnitzer, who works from California for Sims Metal Global Trade Corp.

Knippel referred to it as a “decoupling” of scrap prices from finished steel prices, adding that prices for some forms of steel are based on forward demand from “a supply chain that is still empty.”

The two American traders, along with Chief Operating Officer Denis Reuter of Germany-based TSR Recycling, described the ferrous scrap market as one that has spent 2021 being in short supply. “In Europe, we have huge issues with new arisings because of the problems in the automotive industry,” said Reuter. “The generation of prime scrap is really, really low, but demand is still high,” he added.

Knippel said the price premium on hard-to-find prompt scrap has caused mill buyers to closely calculate their least-cost-suitable-charge equations and shift to buying additional shred. As far as prompt grades, he remarked that as long as COVID-19 affected activity in parts of the world, it was likely to “keep inhibiting overall scrap generation.”