China's Coking Coal Deficit and Steel Restrictions Support Scrap Prices

Ferrous scrap prices are supported by Chinese demand for decarbonisation, reduced air emissions and limited growth in steel production, as supplies of coking coal and electricity remain limited.

Prices for imported HRS101 scrap metal in China are estimated to remain high at $ 598 per tonne CFR as of early October, higher than the September average of $ 576.19 per tonne CFR.

After last month's decline in shredded scrap prices in Europe and a more stable level of HMS scrap in Turkey, scrap to be exported to China may have higher prices. This could maintain its position in the scrap markets compared to the benchmark iron ore grade with an iron grade of 62%, which fell another 25% compared to September compared to August.

China imports iron ore with an iron content of 62%. Iron ore prices with a 62% iron grade remain relatively close to recent lows after having more than halved since July, while import prices for coking coal in China hit new records last month.

New spreads and ratios, based on Platts' existing estimates of hot rolled steel, pig iron, scrap, iron ore and aluminum from the US, China, Turkey and the Black Sea region, have been implemented in response to market demand for tools. to help quantify costs, manage risk, and support opportunities for scaling up carbon reduction strategies and strengthening regulation.

Restrictions on steel production and higher coking coal prices have reduced demand, while Chinese policies have increased the attractiveness of low-emission scrap, imported pig iron and hot briquetted iron.

Scrap metal prices for delivery to the Chinese domestic market also remain high, slightly above August, even as iron ore prices fell.

According to calculations using data from the World Steel Association, in the first eight months of 2021, China's demand for scrap and metals for steel production, in addition to pig iron production, could increase by about 26.5% compared to the same period in 2020.

Demand for Atlantic iron supplies and orders has recently dominated in China, which may be able to prepare material to increase production at the end of the year and early 2021, given delivery times from Russia, Ukraine and Brazil.

Carbon emissions from pig iron in a blast furnace are typically around 2.5 MtCO2 per tonne of pig iron.
The use of higher grades of recycled steel scrap in large quantities, when mills are trying to add scrap and HBI to the blast furnace, can help steel producers and consumers reduce product emissions and save valuable fuel and energy.

China is set to cut steel production below 2020 levels this year, the first annual cut since 2016. China's crude steel production is likely to fall further in September and remain low in October, with steelmakers facing wider production restrictions from early September due to energy controls.