China could increase bulk steel scrap buying in future if UK cargo passes customs: sources

The prospects for large volume trades in China’s import steel scrap market could hinge on whether a large United Kingdom-origin bulk cargo successfully passes Chinese customs checks later this year, sources told Fastmarkets

In late June, a Hangzhou, China-based trading company was heard to have booked a UK bulk cargo for September shipment totaling around 30,000 tonnes and comprising shredded scrap and bonus grade material. A second bulk cargo is rumored to have been sold to China more than one week later at a price of around $420 per tonne cfr for shredded but this could not be confirmed.

UK bulk steel scrap trades to China are highly unusual, due to the Asian nation being unable to consistently match international scrap prices over the past year, the long voyage time, and the large volume of cargo involved.

When China has imported steel scrap since rules restricting the trade were relaxed in January 2021, it has purchased mainly from Japan and South Korea in small bulk vessels carrying around 6,000 tonnes of either plate and structural (P&S) scrap - which fits China’s scrap category HRS101 - or prime scrap new arisings.

But more stable China market prices together with a sharp drop in Turkey import scrap tags made sales to the Asian nation very appealing in June.

Fastmarkets’ price for steel scrap, index, heavy recycled steel materials, cfr north China averaged $496.81 per tonne last month, $130.98 per tonne higher than Fastmarkets’ price assessment for steel scrap HMS 1&2 (80:20 mix) North Europe origin, cfr Turkey of $365.83 per tonne. By comparison, in April, the Turkey price traded at an average premium of $84.22 per tonne over China.

Customs checks

China has uncommonly purchased shredded scrap since its rules changed, sources told Fastmarkets, meaning market participants are very interested to see if the cargo can pass customs checks successfully. UK-origin shredded scrap is known to be of relatively high quality across the global scrap trade.

Fastmarkets has heard unconfirmed reports of containerized shredded scrap cargoes being rejected in China during the first few months of Chinese import buying in 2021, although boxes of shredded from different suppliers also successfully passed through China customs last year.

While there remains a big question over whether such large UK-origin cargoes of shredded and bonus scrap can pass China customs checks, an expert in the international steel scrap business suggested that the buyer can send experienced inspectors to the departure port to examine the products before they are loaded and shipped.

“The cost of hiring the experts and their travel cost is tiny comparing with the losses you may face if the cargo fails to pass the customs check. By doing so, the risks of failing to pass the check may be greatly reduced,” he said.

Trade flow to continue?

Most market participants believe that if the UK cargo passes customs checks, it would be a landmark moment and would likely lead to further such trades, but only when prices made the opportunity possible.

“If this one cargo can get in successfully, Chinese steel mills will certainly purchase similar cargoes aggressively,” an official from a steel mill in North China told Fastmarkets.

Chinese banks will also be very willing to issue letter of certificates, as this kind of trade is under their “low-carbon” business category and is greatly encouraged by the country, a steel trading source said.

China has been interested in buying P&S and shredded from the bulk market over the last month, but there is uncertainty over how long this may last, a European scrap seller told Fastmarkets on June 30. Chinese steelmakers appear to be scaling up steel production, the exporter said.

“There have been so many false dawns for China, but when global prices were going down, exporters did not want to deal with Turkey so sold into China, Mexico and Egypt instead,” a second exporter source said.

He said that further large bulk deals would be more likely if China opts to source more scrap in order to reduce carbon emissions in the country and if import standards are relaxed to allow lower-grade materials such as heavy melting steel to be imported.

China’s imports of ferrous scrap, excluding stainless steel scrap, totaled 22,714 tonnes in May, up by 11.42% month on month.

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