Chinese steelmakers have increased the proportion of scrap they use in basic oxygen furnaces to as much as 17.5% from 9% two months ago, taking advantage of cheaper scrap prices amid a glut resulting from a nationwide crackdown on induction furnaces, an official at China Baowu Steel Group said this week.
Technical limitations cap scrap use in BOFs to 20%, which gives steelmakers still more room to increase its use from a current industry wide average of around 15%, he told an industry seminar in Shanghai Wednesday.
"As long as there is potential for more margins, mills will keep working to raise the bar [beyond 20%]," he added.
Jiangsu Shagang Group, China's biggest scrap consumer, is known to be charging its BOFs with a maximum of 18% scrap, a company source told S&P Global Platts separately.
He said raising that proportion may pose technical issues and wouldn't necessarily be economical due to higher electricity costs and the longer time needed to melt scrap.
Shagang's buying price for heavy-melting scrap with a minimum width of 6 mm was lowered this Tuesday to Yuan 1,470/mt ($213/mt) delivered Zhangjiagang including 17% VAT, the lowest since July 2016, data compiled by Platts show.
Assuming output of 700 million mt/year of hot metal, an increase in scrap charge rates to 15% from 9% would see additional hot metal output of 42 million mt, displacing 70 million mt of iron ore, the Baowu official said after the event.
On electric arc furnaces, the Baowu official noted that while they typically use a mix of scrap and hot metal in the proportion 70:30, Chinese steelmakers including Baowu had made technical conversions so they could take 70% hot metal and 30% scrap to take advantage of more economical iron ore costs.
With scrap prices having fallen to a low, a number of mills are now seeking to feed their EAFs entirely with scrap, he said. Companies that had however earlier removed the transformers in their EAFs during the conversion to use more hot metal would likely not seek a return to using more scrap, because converting things back would be too costly.
With the shutdown of induction furnaces, steel industry participants have been concerned that companies would simply set up EAFs to take advantage of the surplus scrap.
A separate industry source at the event said a survey of EAF manufacturers showed new orders for EAFs amounted to 30 million-40 million mt in capacity, but owing to uncertainty over regulatory restrictions in setting them up, only 10 million-20 million mt had been delivered.
The EAF buyers can be divided into three groups: mills that have permits to start them up but haven't due to uncertainty over government policy, those that had permits and sought to replace smaller units with bigger ones, but have been prevented from doing so because that would represent the starting up of new and additional capacity, and those that don't have permits and were seeking to switch from operating induction furnaces to EAFs.
