FOCUS: China fishes for Japan scrap imports with premiums over domestic prices

Chinese steelmakers have been actively bidding for Japanese import scrap cargoes at prices above the China domestic market level in recent days, sources have told Fastmarkets.

At least two major steelmakers were heard making inquiries for scrap with Japanese trading houses and suppliers on Friday February 5.
The hive of activity comes just ahead of China’s Lunar New Year holiday next week, with some fortunate market participants already starting their vacations earlier this week.
Bids for imports of heavy steel scrap (HS) from Japan were heard at $440-450 per tonne cfr China on Friday, while offers from Japan for the material were heard at $465 per tonne.
That is up from last week’s bid level of $420 per tonne cfr and offers at around $440 per tonne cfr. A deal was heard at $430 per tonne cfr China for HS last week, but sources said that level would no longer work this week.
The prices that mills were willing to pay also outstripped the domestic price level in China this week.
Fastmarkets’ weekly price assessment for steel scrap heavy scrap domestic, delivered mill China was 3,170-3,190 yuan ($489-493) per tonne on Friday.
After deducting value-added tax, the domestic price level would indicate that Chinese mills could pay $435 per tonne cfr for HS, market participants said, which means that Chinese steelmakers are bidding $5-15 per tonne above their domestic market for Japanese imported material.
China happy to pay higher
Sources said that Chinese mills were willing to pay such a high premium for import scrap at this time because of their positive outlook for the steel market after the holidays.
China’s domestic steel demand typically increases from March, with steel mills ramping up demand for raw materials to feed their production facilities, sources said.
Steel mills also need to replenish scrap inventories after the Lunar New Year holidays because their stocks would have turned lower after 10-14 days’ consumption.
Another reason for the active sourcing of imported scrap by Chinese buyers is that they want to test Chinese import procedures at the ports, including how to pass Customs inspections.
As a result, steel mills are still looking to import smaller trial tonnages of around 3,000 tonnes.
“Even though the import price is higher than domestic prices, the small tonnage will not cause too much of a loss for mills if anything goes wrong,” a source at an eastern China mill said.
Japanese suppliers are also more positive on dealing with Chinese Customs authorities ever since the first HS scrap cargo sold to China this year passed Shanghai customs inspections smoothly on January 29, sources said.
“Japanese scrap passed China’s customs checks so this has made Japanese suppliers relieved and now business discussions with China have become more active,” a Japanese steelmaker source said.
Swinging the regional balance
China’s presence in the spot scrap market has caused the Asia Pacific region to swing towards stronger demand for high-grade scrap, causing scrap prices to increase.
Japanese steel scrap prices have increased this week, with sellers increasing their offers due to Chinese demand.
“Some shippers are buying scrap in advance because they think prices will increase, so domestic mills and buyers have to chase after the higher bids by Chinese buyers,” a Japanese trader told Fastmarkets on Friday.
Offers have also risen throughout this week following an effort from Japan’s suppliers to hold onto material after some market participants incurred losses in selling to the domestic market last week.
China has consistently outbid Asian rivals such as South Korea for steel scrap this week.
While bids from China for Shindachi busheling and HS were at around ¥44,000 ($418) per tonne fob this week, a South Korean steelmaker told Fastmarkets on Friday that he was expecting to pay no more than ¥40,000-42,000 per tonne cfr Korea for Shindachi, which would only equal around ¥38,000-40,000 per tonne fob Japan.
While some market participants have told Fastmarkets that there is a risk premium priced into Chinese sales given their recent shake-up of import policy, a Japanese trading source disagreed with the premise and said that Chinese buyers are simply willing to accept higher prices than other Asian consumers.

Lee Allen

lee.allen@fastmarkets.com

Jessica Zong

jessica.zong@fastmarkets.com

Paul Lim

paul.lim@fastmarkets.com

Published

Lee Allen

Jessica Zong

Paul Lim

February 05, 2021

12:42 GMT

Singapore, Shanghai