The iron ore complex surged on Thursday, bringing prices to new highs as demand for iron ore remains high in the Middle Kingdom:
Spot prices exceeding $170USD per ton while coking coal and rebar advanced nearly 2%.
The lifting of a two year ban on imported scrap steel into China last week are considered “symbolic only” according to SCMP:
The ban on scrap steel for steel production was lifted from the start of January after China had prohibited its import to prevent the global dumping of low-grade scrap “waste” since late-2018.
Last week, new standards were also formalised by authorities to classify scrap as a “recycled steel raw material”, while also reducing the import tariff to zero. This adjustment coincided with a total ban on general imported solid “waste” that went into effect on Friday.But two deals by Baowu Steel Group and Zhejiang Judong struck just after January 1 appear to be part of an early trial and are not indicative of a surge in scrap imports, given the excessively high prices struck, analysts said.
“The market thinks these deals are mostly symbolic, as current economics don’t add up. Chinese domestic scrap prices are nearly US$60 a tonne cheaper than Japanese scrap prices after accounting for freight rates. So, we don’t think there will be any surge in imports in the short term,” said Keith Tan, S&P Global Platts’ senior steel and raw materials analyst.
Chinese mills can procure similar ferrous scrap grades locally today at much more competitive rates compared with the cargoes recently purchased from Japan“While some cargoes were booked on New Year’s Day from Japan to China, we believe this was little more than a ‘public relations trade’ rather than out of any economic benefit,” he said. “Looking at the economics, Chinese mills can procure similar ferrous scrap grades locally today at much more competitive rates compared with the cargoes recently purchased from Japan.”
The move to permit scrap steel had also been long in the making, as Chinese authorities pivoted towards waste management and recycling, analysts added.
Despite China’s stinging tensions with its biggest iron-ore supplier, Australia, analysts also said that the new rules were not targeted at Australian imports, as the tilt towards steel scrap had been earmarked as a wholesale change as part of China’s 14th five-year plan.Analysts added that, due to the higher prices of imported scrap and the small size of the global scrap market, it is unlikely steel mills will be motivated to replace large amounts of imported iron ore with scrap steel in the short term. The high price of scrap steel and its low availability are not compatible with volume-driven steel producers.