EXCLUSIVE: Chinese dealers taking over Japanese scrapyards to secure supply

“Their main aim is to secure ferrous scrap supply for Chinese buyers when [China’s] import ban is lifted and ferrous scrap is allowed to be imported as recycled steel raw materials in 2021,” a scrapyard source in Japan told Fastmarkets.

These dealers and business entities have sunk considerable capital to become co-owners or full owners of Japanese scrapyards, or have started setting up new businesses in Japan that are related to the sector.

Major Chinese top-tier steelmakers and traders have been actively sounding out various steel scrap supply sources in locations such as Japan and Australia ahead of the lifting of the import ban.

“Many scrapyards and traders are hoarding high-grade scrap such as HS scrap, so that they will be able to send cargoes to China quickly if there is demand,” a Japanese trader told Fastmarkets on Monday November 30.

The price gap between domestic scrap and that in other regions such as Japan and Vietnam is large.

Fastmarkets’ price assessment for steel scrap heavy scrap domestic, delivered mill China was 2,850-2,950 yuan ($433-448) per tonne including value-added tax on Friday November 27.

This is a premium of about $25 per tonne over import prices for bulk cargoes in Vietnam, and a premium of some $32-33 per tonne over import prices for such cargoes in South Korea after accounting for VAT.

Multiple market sources expect Chinese demand for imported scrap to be skewed toward high-grade scrap such as shredded scrap, Shindachi, busheling, plate & structural and HS grades.

This is due to demand from mills operating blast furnaces to increase direct-charge scrap in their basic oxygen furnaces amid high prices for iron ore.

“China also has an abundance of obsolete heavy melting scrap, so they would not need to import HMS 1&2 (80:20) that much,” a scrap buyer in Southeast Asia said.

This is especially so with China set to ban imports of all scrap metal from January 2021, including removing scrap import quotas. The country has classified ferrous scrap as “recycled steel raw material,” however.

Chinese traders told Fastmarkets that they are already in touch with Japanese scrapyards and East Asian traders to try to secure materials.

“I expect it to be good business when I start bringing in ferrous scrap for steel mills, especially if emission restrictions continue to be strict in 2021,” a trader in eastern China said.