FEATURE: Chinese ferrous scrap suppliers struggling to survive
Scrap dealers suffer slowing sales as demand from mills weakens
Chinese ferrous scrap processing companies have found it more difficult to sell their products this year, as both blast furnace (BF) and electric-arc-furnace (EAF) steelmakers have reduced their steel scrap use, Mysteel Global learned.
Real estate development is China's largest steel-consuming sector and the ongoing slump in construction of new properties is dragging down demand for steel and causing production enthusiasm among steelmakers to cool, as reported.
"We used to produce around-the-clock, but now we have reduced our working hours to between 11 and 16 hours per day," said an official with Anhui Jingxian Longxin Steel Co, a mini-mill in East China's Anhui. These days, the company mainly produces during off-peak periods for electricity when power costs are lower, she added.
Anhui Jingxian Longxin has an EAF production capacity of 700,000 tonnes/year of crude steel, yet currently, output is way below that at around 350,000 t/y, Mysteel Global learned during a recent works visit.
A manager at Magang Chengxing Metals Resources Co., a steel scrapyard also in Anhui, lamented that orders from steel mills have decreased drastically this year. "At peak times, we could process up to 300,000 tonnes of scrap per month, but now the volume is only about half of that," the manager said.
Ferrous scrap piled at Magang Chengxing's yard
Mysteel surveys have also tracked the slowdown in steelmakers' purchases of steel scrap so far this year. During January-April for example, the volume of ferrous scrap arriving at the 300 BF and EAF steelmakers under Mysteel's tracking averaged just 496,430 tonnes/day, lower by some 5% compared with the same period last year.
Scrap processors have little pricing leverage
In sync with the weakening demand, Chinese ferrous scrap prices have been steadily retreating as well, Mysteel Global noted. During the first four months of this year, the country's steel scrap price index as assessed by Mysteel averaged Yuan 2,953/tonne ($416.2/t) including the 13% VAT, lower by some 7.1% on year.
Scrap processing companies are struggling to defend their selling prices against pressure from steelmakers as the collectors and dealers must keep churning their stocks in order to maintain steady cash flow, according to industry sources.
Even Ouyeel Lianjin Recycling Resources Co, a key Baowu Group subsidiary and China's largest steel scrap processor boasting an annual processing capacity of 50 million t/y, is not immune to mill pressure. Ouyeel Lianjin's scrap selling prices are decided by its steelmaker customers almost all the time, a company source admitted.
However, in negotiations with their upstream scrap suppliers such as steel end-users and individual scrap collectors, the scrapyards face great difficulty convincing the sellers to reduce their offer prices for scrap.
"If we ask for a large reduction in scrap prices, the sellers will simply stop selling to us," complained an official of a scrap processing enterprise in East China's Zhejiang with the processing capacity of 200,000 t/y. After all, the domestic supply of steel scrap is still tight overall, and scrap sellers have few concerns about finding buyers, he added.
Trucks queuing waiting for delivery at Magang Chengxing Metals Resources
At the same time, the slowdown in business activity among steel end-users has constricted the generation of steel scrap, Mysteel Global noted.
For example, by the end of April this year, the volume of demolition scrap collected by the 105 domestic steel scrap recycling companies under Mysteel's regular tracking hovered around 21,830 tonnes, lower by 44.7% compared with the same period last year, and the slow progress of real estate projects was mainly to blame.
"Squeezed between the scrap suppliers and steelmakers, we can barely make any profit on our business, and from time to time we incur losses amid the vicious competition," the Zhejiang official said.
Under such circumstances, many small-sized scrap dealers frequently opt to close their yards temporarily when steel mills announce successive reductions in scrap buying prices, the results of Mysteel surveys show.
Scrap-sector operating costs climb in a more standardized market
In addition to the costs they incur procuring scrap, Chinese scrap processing companies are being pressed to allocate more and more funds to the 'optimization' of their entire operation – from collecting and sorting, to processing and eventual delivery – in order to meet higher industry standards formulated by the central government, Mysteel Global learned.
In recent years, government authorities have taken action more frequently to address long-standing issues in the industry, including the continuing use of inefficient processing procedures, condoning dirty production environments, and exploiting taxation loopholes.
For example, steel scrap processors have been required to keep the air in their workshops clean to protect their workers' health, which means the companies must spend more money to install equipment such as large-sized air filtration and dust collection systems, according to a market analyst based in Shanghai.
Dust collection facilities beside a scrap processing workshop at Anhui Jingxian Longxin Steel
Other optimizations include the replacement of trucks powered by internal combustion engines with electric vehicles, the construction of highly automated workshops to reduce manual processing, and the establishment of intelligent process monitoring systems, all of which lead to an increase in costs, the analyst said.
Besides, in recent years, the central government has introduced many policies to unify the various tax thresholds and has adjust invoice systems for scrap recycling enterprises across the country, which have increased the tax burdens on companies, as reported.
These reforms are aimed at making the recycling industry more transparent and standardized in China, so that the country can ensure a sustainable supply of high-quality renewable resources in the long run.
"In the process of industry transformation, it is inevitable that some smaller and poorly managed enterprises will be eliminated," the Shanghai analyst said. This is also encouraging the companies to expand their capacity and adjust their business models, Mysteel Global noted.
Against this backdrop, China's Ministry of Industry and Information Technology (MIIT) has been actively pressing scrap recycling and processing enterprises to become qualified under its certification system.
The companies qualified by MIIT are required to have the scrap processing capacity above 150,000 t/y, and the facilities they use must have high processing efficiency and low energy consumption, according to the ministry's criteria.
Once recognized by MIIT, the companies can enjoy a number of preferential policy benefits that will help them ease their operation costs, as reported.
As of this month, a total of 825 ferrous scrap processing companies nationwide had obtained MIIT's qualification certification.
Written by Anthea Shi, shihui@mysteel.com
Edited by Russ McCulloch, russ.mcculloch@mysteel.com
China's demolition scrap supply at 5-month low
Aug 22, 2024 16:30
MYSTEEL: Steel scrap regains price edge over hot metal in China
Aug 20, 2024 16:30
Weak fundamentals shrink China's ELV scrap supply
Aug 14, 2024 16:30
Shagang slashes scrap buying prices by another $7/t
Aug 05, 2024 17:00
China's scrap supplies from ELVs seen falling in summer
Jul 17, 2024 16:00
Steel scrap prices: China's major cities
Sep 14, 2024 14:27
Steel scrap procurement prices: China's major mills
Sep 14, 2024 11:20
Mysteel imported steel scrap prices
Sep 14, 2024 11:15
Stainless scrap prices: China's major cities
Sep 14, 2024 10:55
Alloy steel scrap prices: China
Sep 14, 2024 10:31