South Korean metallurgists sell scrap metal to China

The recent export sale of ferrous scrap from South Korea to China has raised concerns among South Korean steel mills that they will soon have to compete with Chinese buyers for high quality scrap produced in the South Korean domestic market.

It was heard last week that a shipment of HS scrap from South Korea was sold at $ 495-498 per tonne in China. Most likely, it was a test cargo, but South Korean factories know that after passing through Chinese customs, gateways can open to increase sales. The availability of HS scrap in the South Korean domestic market was already low, and China's interest means that South Korean mills are expecting higher prices from local suppliers.

South Korean domestic suppliers are trying to establish distribution channels with China, as they see this as an alternative way to obtain better prices for their scrap if the prices for collection at domestic enterprises do not meet their expectations. It will also allow South Korean scrap suppliers to increase their purchasing power from other sellers and third parties as they compete for factories to purchase domestically produced material.

Such a development of events may lead to the fact that South Korean mills will pay high prices for HS scrap both in the domestic and foreign markets. Chinese mills will also be a major competitor to South Korean mills in the marine scrap market, as both countries are targeting Japan to meet most of their scrap demand.

China's interest is already affecting the prices of Japanese scrap in a way that South Korean mills fear. Purchases in China have raised the expectations of Japanese exporters and forced them to raise prices. In response, Japanese steel mills have raised scrap export prices to encourage suppliers to ship scrap.

South Korean mills know they are at a disadvantage to compete with China in scrap. Chinese mills can buy scrap from South Korea, but sales will not happen in the opposite direction, because China has set a 40% tariff on the export of ferrous scrap.

China's HS purchases are likely to widen the price gap to the H2 level. HS-H2's premium in the domestic South Korean market is much lower than export sales in Japan, but competition from external buyers will bring this premium more in line with the shipping market.

The current South Korean HS-H2 spread is valued at around ¥ 4,000 ($ 37) based on the H2 deal last week at ¥ 42,500 a tonne in Japan. The current HS-H2 export spread from Japan is estimated at around $ 35 based on the latest H2 and HS offers to Vietnam.

Based on the last t