Review and forecast on China domestic scrap market

Review and forecast on China domestic scrap market

Starting from end March 2005, China has issued a series of macro-control policies, including stricter control on overheating real estate investment, export rebate cancellation on billet/slab and export rebate decrease for steel products, etc, which have posed serious blow to China steelmakers and distributors' market confidence, and further worsened dropping price trend for construction steel products in China. By end April 2005, the average market price of 18-25mm rebar in 28 major China cities was RMB 3'498/ton, down RMB 285/ton against that of end March, 05, and some areas have even suffered RMB 500/ton price decrease. Affected by dropping market situation for construction steel products, market price of scrap in China also decreased gradually. Along with spreading of panic underselling behavior by scrap suppliers as well as the production reduction or halt by certain small EAF manufacturers due to unaffordable cost, the periodical scrap oversupply situation has worsened, and sliding scrap price has quickened also. A. Scrap price change situation in major markets Scrap price has dropped continuously in East China area during April 2005 with the average HMS procurement price in Jiangsu and Shandong area dropping to RMB 2'300-2'350/ton, down RMB 200-300/ton, and that of certain small and medium steelmakers have decreased to RMB 2'250/ton. In Middle South China area, scrap price has declined stably also. By now, the HMS scrap procurement price in Guangdong, Hunan, Hubei, and Henan has stayed mostly at RMB 2'350-2'400/ton, down RMB 100-150/ton. Different to other areas, steelmakers in Middle South China mainly improve scrap inspection standard to control scrap arrival quantity. Scrap arrival situation in North China area has increased stably, and many steelmakers have stopped procurement from other provinces, by now, the HMS price in Liaoning area have dropped to RMB 2'200-2'300 /ton, down 200 RMB/ton against that of month beginning; and that in Hebei areas has been around RMB 2'300/ton, down RMB 100-150/ton. B. Review & Analysis on regional scrap market 1. East China Affected by continuous price decrease of construction steel, scrap price in East China market has been sliding down since the beginning of April 2005. a) Jiangsu area Xingcheng Special Steel has adjusted its scrap price down for five times consecutively in April, with accumulated decrease extent reaching RMB 230/ton. Due to full scrap stock in warehouse, Shagang has adjusted its scrap procurement price down for three consecutive times since the second half of April, with present HMS procurement price reaching around RMB 2'400/ton, down RMB 150/ton against that of the first half April. Scrap procurement price in other steelmakers, such as Xuefeng, Nanjing Steel, Huaiyin Steel, Suzhou Steel, Zhongtian Steel etc. has a decrease extent between RMB 100-200/ton against that of the previous time, with the average HMS procurement price reaching RMB 2'320-2'350/ton. b) Shandong area Laiwu Steel, Jinan Steel and Shiheng Steel have adjusted their HMS procurement price down to around RMB 2'400/ton from 2'560-2'570/ton at the beginning of April, except for the tight inventory situation in Shiheng Special Steel, the other major steelmakers' scrap inventory is relatively rich. Affected by continuous scrap price decrease of the surrounding areas, Baoshan Steel and Hangzhou Steel have adjusted their scrap procurement base price down by RMB 200/ton and 300/ton respectively this week. For detail, HMS procurement price of Baoshan Steel has decreased to around RMB 2'180/ton, and that of medium scrap reaching RMB 2'050-2'080/ton. Meanwhile, BaoSteel has declared a remedy scheme for April. For detail, Baoshan Iron & steel will remedy 180 RMB/ton (without tax), and that of Shanghai No.5 Steel Plant, Shanghai No.3 Steel Plant and Meishan Steel is about RMB 130/ton. Due to the recent good scrap arrival situation and the formal operation of No.4 blast furnace at the end of April, Baoshan Steel's molten iron supply has increased largely and its scrap procurement quantity is planned to be cut by 30% in May. 2. Mid-South China Scrap price in Mid-South China market has decreased steadily in April, and most steelmakers' price adjustment extent is between RMB 50-100/ton. a) Henan area Due to the rich scrap inventory in Wuyang Steel warehouse, Wuyang Steel has adjusted its scrap procurement price down for three times, with accumulated decrease extent reaching RMB 150/ton and the present scrap procurement price is around RMB 2'350/ton. HMS price of Anyang Steel has decreased to around RMB 2'380/ton, and after the continuous price decrease, scrap arrival situation presents a decreasing trend. b) Hubei area Wuhan Steel and Echeng Steel have adjusted their scrap procurement price down one after another in April, with present scrap procurement price of Wuhan Steel reaching RMB 2'380/ton in China domestic market, down RMB 80/ton against that of the beginning of April, while Alashankou Port has adjusted its scrap procurement price down by RMB 180/ton to RMB 2'460/ton. Echeng Steel has adjusted its scrap procurement price down by RMB 130/ton and cancelled some beneficial policy, with present HMS procurement base price reaching RMB 2'310/ton. Daye Special Steel has adjusted its HMS price down by RMB 50/ton to RMB 2'450/ton at the beginning of April and this price has kept stable from then on. c) Hunan area HMS procurement price of Lianyuan Steel and Hengyang Steel Pipe Corp. has decreased to around RMB 2'400/ton, down RMB 40-80/ton against that of the previous time. Affected by the surrounding area's decrease situation, Steelmakers in Guangdong area have begun to adjust their scrap procurement price one after another since late April. Guangzhou Steel and Shaoguan Steel have adjusted their scrap procurement price down by RMB 80/ton and RMB 100/ton respectively, with the medium scrap price decreasing to around RMB 2'3000/ton. Affected by the consecutive price decrease in China mainland, Scrap price at Alashankou Port has decreased largely since late April, with present general scrap import price from Kazakhstan decreasing to about RMB 1'870/ton, down RMB 270-300/ton against that of the first half of April, and market purchase situation has been stagnant. 3. Northern China market: Along with steel products' continuous price decrease and steelmakers' good scrap arrival situation, scrap price in Northeast China has decreased largely and Steelmakers have adjusted their price down frequently. Up to the end of April, Lingyuan Steel has adjusted its medium scrap procurement price to RMB 2'150/ton, down RMB 300/ton against that of March. Dongbei Special Steel has adjusted its HMS price down to RMB 2'300-2'370/ton, down RMB 130-200/ton against that of the April beginning, and scrap inventory in this area has increased slightly. For detail, the former Fushun Steel's scrap inventory is around 10'000 tons, that of Dalian Jinniu is 6'000 tons, and that of Beiman Special Steel is around 15'000 tons. Tonghua Steel just purchases scrap from Jilin area at present, with present HMS price reaching around RMB 2'250/ton, down RMB 200/ton against that of the beginning of April, and suppliers are active in scrap offering based on their 40'000 tons of inventory level. Benxi Steel's steel procurement price has decreased to RMB 2'300/ton, with 35'000 tons of scrap inventory. From the beginning of April, Handan Steel and Tangshan Steel have adjusted their scrap price up slightly, however, as the scrap price in surrounding market has decreased one after another, Hebei scrap price has decreased rapidly also. At present, medium scrap price of Handan Steel is around RMB 2'300/ton, down RMB 160/ton against that of the first half April, and that of Tangshan Steel has decreased to about RMB 2'180/ton, down RMB 40/ton. C. Analysis on scrap import situation for April, 05 Based on latest statistics data, China has totally imported 2.56 million tons of scrap for the 1st Q 2005, down 21% year on year, while up 10.9% over that of the 4th Q 2004. For detail, scrap import for March 2005 totaled 965'200 tons, creating the highest level since last April. China scrap import from the US and Japan totaled 264'700 tons and 210'500 tons respectively in March 2005, holding 27.42% and 21.80% among its total scrap import; and that from CIS has totaled 284'100 tons, holding 29.4% among the total. At the moment, Japan's HMS2 scrap export price to China has been around $250/ton, down about $30/ton over that in early April 2005. Japan Tetsugen Group bid 5'000 tons of HMS2 on April 21 with average price of 225000 Yen/ton for May 20-June 30 delivery, down 2'827 Yen/ton against the price of previous time. Meanwhile, due to weak procurement from East Asian steelmakers, Japan steelmakers have gradually reduce their scrap procurement price also. For example, Tokyo Steel has adjusted its scrap procurement for three times with 2'500-3'000 Yen/ton extent. In April 2005, the US Ford and Daimler Chrysler has raised auto scrap price by $28/ton, pushing domestic and export price to recover, while along with weakening Asian market, the US scrap export market has suffered heavier pressure. At the end of March 2005, Shagang has imported a batch of clippings with that price of $294-296/ton, while the current market quotation has dropped to $290/ton(C&F), down $5-8/ton. Meanwhile, price of shredded scrap and Bonus has been $300/ton and $310/ton, down $10-20/ton. D. Prospect on future scrap market trend in China In April 2005, China domestic scrap market has presented forced price drop situation affected by other steel products, indicating that the tight scrap supply situation has not been changed essentially. As scrap traders have undersold their goods under panic sentiment, steelmakers' scrap arrival situation to China steelmakers is commonly good, however, except for the overfull stock in some major steelmakers, general scrap stock level has not increased too fast. During nearly half a month price decrease period, the sentiment of "purchasing scrap while its price is rising instead of decreasing" has encouraged China steelmakers to take wait-and-see attitude, thus certain electric furnace producers begin to cut production or raise their inspection standard to control scrap purchase, thus scrap inventory has presented a steady increase trend. During the Steel Research Conference on April 26th, steelmakers have reached a common understanding of keeping steady development in China domestic steel market. Under such influence, China domestic construction steel price has increased slightly since the end of April. While considering the high scrap inventory level in China domestic steelmakers and market, it is estimated that China construction steel market trend will not be optimistic after the Labor Day Holiday. As for scrap resource, scrap recycling & processing is booming in April. & May every year, and the scrap supply quantity will be much more over that in winter. However, after the latest scrap underselling, scrap suppliers have few resources to offer. Meanwhile, although China steelmakers' scrap inventory has increased slightly, scrap traders' enthusiasm has been frustrated after the continuous price decrease, thus China steelmakers' scrap arrival situation at the moment is not as good as that of the previous time. Moreover, as all of the old invoice of enterprises' for recycled material reclaimation in Zhejiang province has been changed to RMB 100 denomination to rectify the tax evasion phenomenon, recycling enterprises' business flexibility has been restrained at a large extent. Many traders have stopped recycling scrap and certain leading steelmakers are forced to stop production also, bringing much impact to the surrounding markets. Once the construction steel market price becomes steady and steelmakers' scrap demand increases, the conflict between scrap supply and demand will appear again. It is forecast that China domestic scrap market will still keep overall modification pattern recently with limited price drop extent.