US market mulls impact of China's return as ferrous scrap importer

Pittsburgh — The impact of China's return as a scrap importer is expected to ripple throughout the global ferrous scrap and steel industry, and US sources are discussing what the ramifications will be domestically.

China made it's much-anticipated return to the global scrap market in early 2021 with a reclassification of the raw material for import and the first ferrous scrap import deal into China in nearly 20 months coming in the form of a nominal cargo sourced from Japan.

The US hasn't exported a significant cargo of shredded scrap to China since April 2018 when 25,000 mt and 23,100 mt left from the ports of Seattle and San Francisco, respectively.

In recent weeks, there were already reports of a bulk shredded scrap cargo purchased and bound for China from the US West Coast. Although heard by many, market chatter about the transaction remained unconfirmed. Even still, domestic scrap buyers are wary of the new market participant even though some cause for concern still remains for exporters looking to ship to the country.

"The bulk shred deal was [untrue]," said one supplier. "There's only [four major West Coast exporters] and none of those four would gamble and be the first to do that. Nobody wants to be the guinea pig."

"We're all talking about it; the consumers don't want to talk about another player in the mix," said a broker. "I think its going to make an impact, certainly on finished goods. If they're for real and they're going to start buying scrap I think it's going to be interesting. It's part of our mindset, we're definitely having those conversations and we're definitely seeing it as an impact item."

"I think it's going to be a very dynamic trading environment until things get settled on quality. I don' think guys are extremely comfortable with taking the quality risk into China right now," agreed a trader. He added that there are still other concerns about shipping to China as well. "You could be at risk of demurrage depending on what port your selling to, they may not have the exact equipment required, they may have congestion, etc. People are going to want to get comfortable and offset demurrage before they do that."

Changing paradigm and magnitude of impact

The true impact of China's reentry into the market remains to be seen, but their resurgence will certainly tighten global supply and could subsequently support pricing to some degree.

"China could import more scrap than Turkey does; if that's the case there's going to be a significant (global) shortage. As long as they don't jump into that old regime of 'volume, volume, volume, volume,' which it doesn't look like they're doing, that's good for the industry," said a trader, referring to reports that Chinese finished steel production is trending more towards higher quality steel and EAF production rather than the historically large volumes of low-quality finished steel that had been seen in the past.

"If it goes as it could they could outpace turkey, which would be something to see. They could displace everybody in one or two years. They could overtake Turkey... it's a shifting paradigm," said the supplier.

However he didn't necessarily believe the addition of China to the market would greatly increase US scrap exports. "The only way that would happen is if prices were markedly higher but that's not going to happen. China's not going to pay," he said.

"I'm less concerned about it because there's so much scrap here that can't even make it to the coast at a realistic price," said a mill buyer who agreed China's impact may be unlikely to drastically increase the total volume of US scrap exports. "I think Turkey should be concerned about China. Now if they've got to compete with China that's an issue for them. If there's a million tons for export now those two have to fight over it."

The US exported just over 5 million metric tons of shredded scrap and slightly more than 5.5 million mt of HMS 1 and 2 grade scrap in 2020. "Consumers should be concerned though if it does restrict supply," the mill buyer added.

If not now, when?

It remains unclear when China's impact in the global scrap market will be felt, but expectations were heard ranging from as early as just after Chinese New Year festivities later this month, to H2 2021.

"There's a lot of serious discussion going on about buying into China. I think we'll start to see deals being agreed to and I think US sellers are waiting cautiously on different scrap from different countries to see how they grade those. There's a lot of discussion ahead of Chinese New Year on bringing material in post Chinese New year," said the trader. "They're starting to make approaches domestically."

"I think summer, fall, Q3 you'll start to see a pickup in activity," said the first supplier. "Every mill is nervous as hell because traders are now out and about. Other suppliers and I received several calls (from mill reps) to see if that rumored cargo was real. They're nervous, and they should be."