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Spotlight on China steel: Scrap consumption, supply growth to be modest in 2020


S&P Global Platts estimates that China's scrap consumption increased by up to 30 million mt in 2019. Market sources said mills boosted scrap utilization in both blast furnaces and basic oxygen furnaces, or BOFs, in the first half of 2019 when steel margins were strong, with imported iron ore expensive and tight in supply.

Some mills said their scrap utilization ratios in blast furnaces increased to around 10% in the first half of 2019, but had decreased to 0%-4% in the second half as iron ore prices eased.

The scrap utilization ratio in BOFs stayed at comparatively high levels in the second half of 2019, with some mills keep it at around 16%-17%. Some sources said mills would not decrease scrap ratios further in BOFs unless they were making losses, as they still wanted to produce as much steel as possible to maximize profit.

According to a Platts market survey, China's scrap supply is expected to increase by around 10 million-20 million mt in 2020, due to weak manufacturing growth and a scattered scrap supply chain.

Given China's low scrap supply growth and high steel production, as well as recovering global iron ore supply, market sources believed Chinese scrap prices will be at high levels in 2020, making iron ore more favorable for integrated steel makers. The scrap utilization rate in blast furnaces is likely to stay marginal in 2020.

Meanwhile, the ratio of steel manufactured from electric arc furnace, or EAF, to China's total crude steel output in 2020 is likely to be similar to 2019, as the expansion of EAF steelmaking capacity will be slow.

According to the China Association of Metal Scrap Utilization, EAF steel accounted for about 10% of China's total crude steel output over January-September in 2019, unchanged from the same period in 2018.

Chinese government relaxed steel output cut orders for environmental reasons since the start of 2019, while the implementation of such orders has been poor in any case.

With improved technologies, especially those used to boost scrap utilization, mills could keep their crude production fairly stable, even if they are ordered to trim output at blast furnaces or sintering plants, provided the steel margins are high enough to act as an incentive.

Therefore, the major driver behind steel production has been steel margins, while the impact from environmental protection orders has almost disappeared since 2019.

Source: S&P Global Platts