Announcements over the new year about the first deals done for ferrous scrap imports into China in nearly 20 months were deemed largely symbolic and likely to be one-offs by market participants Jan. 4, who said current market economics do not make the imports viable.
Ouyeel, a ferrous scrap trading unit under China Baowu Steel Group, announced Jan. 1 that it had signed the first contract under the country's new ferrous scrap import standards with Japanese trader Mitsui & Co.
The deal was for 3,000 mt of HS grade scrap that will be delivered to Shanghai port for consumption by Baoshan Iron & Steel Co, Ouyeel said in its WeChat account, and a source familiar with the matter said.
Current international scrap prices were about $50/mt higher than China domestic prices, and Ouyeel did the deal mainly "as a trial," the source said.
The exact price at which the deal was done has been kept confidential, and a source at another Chinese company that received the offer from Mitsui in December said it was $500/mt CFR China at the time. The latest deal was likely done mainly for publicity, that source said.
"Many have been trying to find out about the price level for the Mitsui deal as a starting point for negotiations, but both companies have kept it quite confidential so far," a Tokyo-based trader said. "We want to observe further before offering, but hear that some HRS offers to China are floating around $500/mt CFR at the moment," he said, referring to the classification of scrap under China's new standards.
Based on Jiangsu Shagang's current buying prices for Heavy No. 3 scrap at Yuan 3,020/mt ($467.50/mt) delivered, including 13% VAT, and port charges of Yuan 30/mt, domestic prices would be $409/mt on an import parity basis, according to S&P Global Platts calculations.
With HS scrap prices at Yen 45,500/mt FOB Japan, including Yen 1,000/mt for port charges, and freight to China at $25/mt, exports to China would add up to $466.70/mt CFR China, about $58/mt dearer than Chinese domestic prices on an import parity basis.
"The domestic price of China seems a lot lower than Japan's selling ideas to Vietnam and Taiwan currently," a Hanoi-based trader said. "I'm wondering how they can buy at the moment; either the buyer or seller will be losing out."
Separately, Judong Co., a metal scrap processor and trader in east China, said in a Jan. 2 WeChat post that it has bought its first cargo of 2,800 mt of HS grade ferrous scrap from Japan's Heiwa.
The cargo will ship out at the start of 2021 bound for Taizhou in Zhejiang province, where Judong is based.
"The deal was for ferrous scrap with some ferroalloy content, and was done with some element of speculation," a source at Judong told Platts. He declined to reveal the exact price as "there's no basis for comparison between alloyed steel scrap and carbon steel scrap."
He said he was aware of the Ouyeel-Mitsui deal, and suggested that Ouyeel could have bought it based on its bullish outlook of the market.
The two trades follow the Dec. 31 announcement by Chinese authorities of five new HS Codes that would apply to imports of ferrous scrap under the "Recycled iron-steel materials" standard.
