Smuggling crackdown may limit Chinese ferrous scrap exports

China’s exports of ferrous scrap could be strangled after the country’s General Administration of Customs said this week that it intends to crack down on the “smuggling and export of steel waste and scrap,” Metal Bulletin Research (MBR) believes.

Authorities have arrested 245 individuals suspected of having participated in gangs that tried to sell around 2.41 million tonnes of under-reported steel scrap, the customs administration said on Wednesday June 6. Some of this material was recovered but an unknown amount appears to have been shipped overseas.

China imposes a 40% export tax on ferrous scrap, and under-reporting a price would allow an exporter to pay less in tax.

On June 4 this year, 17 Chinese Customs Anti-Smuggling Bureaux launched “joint operations and heavy strikes” intended to locate suspects and seize material that had been offered to several Southeast Asian countries, the unit said.

The value of the material involved in the case was estimated to be about 4.80 billion yuan ($752 million), it added.

Exports up
China’s ferrous scrap export volumes rose strongly year-on-year in the first three months of 2018, although the country’s government wants more of the material to be retained for use domestically.

“Full utilization of iron and steel scrap is not only an inevitable requirement for breakthroughs in resource bottlenecks, and for construction of a resource-conserving and environment-friendly society, but is also an important way to reduce carbon emissions and alleviate dependence on iron ore,” the customs office said.

China exported 148,670 tonnes of ferrous scrap in the first quarter of 2018, up sharply from a nominal 600 tonnes of exports in the first quarter of 2017, according to data from the International Steel Statistics Bureau (ISSB).

Although export volumes went up year-on-year, they dropped quarter-on-quarter from the 770,000 tonnes exported in the final quarter of 2017.

Scrap use in the country is rising both through the construction of new electric-arc furnace (EAF) units, and increased use of scrap feedstock in blast furnaces, although MBR doubts that there will be significant investment in EAF production when scrap is relatively expensive.

Metal Bulletin’s price assessment for domestic Chinese heavy scrap was 2,200-2,380 yuan per tonne on June 1, up from 1,390-1,590 yuan per tonne one year ago.

The billet test case
If China’s handling of billet exports is any guide, steel scrap export volumes will be squeezed by the increased scrutiny of export activity.

In June 2016, Chinese customs tightened its examinations of billet exports and postponed tax export rebates for the product. Then, from 2017, the export tax on billet was reduced to 15% from 20%.

Chinese billet exports are said to be included in a trade category used only by the Chinese, to avoid export duties of 15-20% on semi-finished products, so data can be difficult to obtain.

But according to ISSB data and MBR calculations, Chinese billet export volumes plunged by 87.64% to 2.13 million tonnes in 2017, compared with 17.20 million tonnes in 2016.

The decrease in the amount of billet being exported from China has helped to support global markets for the semi-finished product, and allowed the price spread for Turkish import billet over Turkish import scrap to widen to $191 per tonne by the end of May 2018. This was close to the five-year record of $209 per tonne recorded in October 2017.

Metal Bulletin’s price assessment for Turkish export billet was $510-520 per tonne cfr on June 7, up by $110 per tonne year-on-year.

Alistair Ramsay in London contributed to this article

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