“The scrap wave is coming,” said Oliver Ramsbottom, a Tokyo-based partner at McKinsey & Co., who sees a significant increase in China’s scrap from mid next-decade. “There’s no doubt that the iron-ore industry is going to be pretty challenged over the next decade at least because you’ve obviously got a lot of supply out there.”
…The cost to China’s mills of producing steel with ore and coal was about 2,130 yuan ($330) a metric ton last year, Bloomberg Intelligence calculates. Electric-arc furnaces. spent about 1,853 yuan a ton. Scrap prices in China tumbled 48 percent last year, outpacing the slump in iron-ore, according to Metal Bulletin Ltd. data.
Electric-arc mills now account for around 60 percent of production in the U.S. and about 50 percent of steelmaking in Europe. The China Association of Metal Scrap Utilization has set a target for 20 percent of the nation’s crude steel output to come from scrap by end of 2020, said Liu Shuzhou, deputy secretary-general of its scrap steel division. Mini-mills were used for about 10 percent of output in 2014, according to Metal Bulletin Research.
Much more at the story. My guess is scrap will rise much faster than most expect and it will add serious pressure to iron ore before long.
David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal.
He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.
