FOCUS: Chinese buyers seek more shredded scrap deals to bolster import volumes

A handful of recent cargoes of shredded steel scrap have successfully cleared through Chinese ports, raising hopes across the market that China may start to import more of this key material grade in the near future.

Since China reopened its import scrap market in January, very strict standards have largely limited trades to high-grade heavy scrap (HS) from Japan and South Korea, and some parcels of Shindachi busheling from Japan.

Unconfirmed reports that Chinese customs rejected some containers of shredded scrap earlier this year have caused scrap sellers further concern when they consider whether to sell the grade to China.

And sellers in regions such as the UK told Fastmarkets earlier this year that they do not believe they can sell to China any shredded or heavy melting steel (HMS) grades. Both are considered to be lower quality grades of scrap than HS and busheling, although they would satisfy China’s strict standards on impurities.

Sources said that the supply of HS material was creating a low ceiling for China’s steel scrap import ambitions, but that large-volume import purchases of shredded material – which is much more widely available globally – could be a game-changer.

Container shipments pass customs
The success achieved in April by shipments of Japan- and US-origin shredded material in containers, in clearing customs in Tangshan, in north China, has shown that selling the grade to China is indeed possible. Traders in the port of Qingdao were also said to have taken receipt of US-origin containers of scrap in recent months.

“Because of these shredded scrap customs clearances, more [containers] are already coming,” a Singaporean trading source said. He added that China required an impurity content of no more than 1% of the total cargo for shredded, which he said was “not hard to achieve.”

“In the near future, we will maybe see more shredded being imported into China, especially with iron ore prices being at such a high level,” a Chinese steelmaker source said.

Persistently high ore prices would mean that the Chinese government could relax some quality controls to let more shredded scrap flow into the country, the mill source said.

Despite the recent successes, other market participants were still worried about selling shredded to China without further rule changes.

One Chinese trading source said that there was a “high risk” of shredded material being rejected on inspection after discharging in China, because the material “can be easily mixed,” which could increase impurity levels.

Fastmarkets’ price assessment for bulk shipments of steel scrap shredded, export, fob main port Japan, was ¥54,000-54,500 ($496-501) fob on Tuesday May 25, down from ¥55,000 per tonne a week earlier.

China scrap import volumes
China imported an overall 109,978 tonnes of ferrous scrap in January-April 2021, with 71,271 tonnes arriving in April, according to customs data from the country.

Meanwhile, over January-February alone, the United States exported 867,618 tonnes of shredded scrap, with just 1,787 tonnes going to China.

The volumes that went to other Asian countries such as Bangladesh, Taiwan, Vietnam and South Korea exceeded 190,000 tonnes in January-February, with Bangladesh taking 100,500 tonnes.

“Shredded is the one [viable] grade that can do big volumes,” the first trader said. “Japan and South Korea are exhausted of HS for export to China, and only have 20,000-30,000 tonnes per month for export of these grades.”

HS availability from Japan was also being constrained by very strong domestic demand for the grade, with several blast furnace (BF) mills ramping up their intake of the grade since April.

Moreover, China’s demand for imported steel scrap has been significantly reduced by falling steel prices over the past week, leading Chinese buyers to withdraw from the market.

Fastmarkets’ daily price assessment for steel scrap, heavy recycled steel materials, cfr China, which takes into account prices at ports in eastern China, was $510-520 per tonne on Tuesday.

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