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China's scrap steel supply is increasing sharply due to the increasing number of old buildings, bridges, and cars being removed and dismantled in the context of the government's push to invest in facilities.
This could stimulate steel mills to increase their use of scrap steel in the next few years, meaning that demand for iron ore in the world's largest consumer of the metal may decrease.
The weakening of China's iron ore demand will be a huge shock to many of the world's mining giants, which are exporting hundreds of millions of iron ore to the world's second-largest economy. .
According to analyst Daniel Meng from Hong Kong-based brokerage CLSA, "In the medium term, scrap steel will be a big threat to iron ore. We believe that by 2020, the replacement process (from iron ore to scrap steel) will happen faster and the threat to iron ore becomes more serious."
Currently, the amount of steel produced from scrap steel in China only accounts for about 11% while this figure in the US is 70%. This shows that there is still a lot of "gap" for China to focus on steel recycling.
China currently possesses an abundant amount of scrap steel after Beijing decided to close inefficient smelters as a move to protect the environment and clean the air. Usually, these mills use scrap steel.
The closure of these factories with a total production capacity of about 120 million tons has raised the export of scrap iron in May to the highest level ever.
Last year, China's waste steel output hit a record 143 million tons, nearly four times the amount in 2002, data from CLSA and the World Steel Association show. This number proves that scrap steel can replace 200 tons of iron ore (equivalent to 1/5 of China's iron ore imports last year) is entirely possible.
By 2020, the figure of 143 million tons could be pushed up to 200 million tons, said the Scrap Metal Uses Association. Much of China's steel is produced from blast furnaces by melting iron ore and then mixing it with scrap steel.
As the price of ST-SCCNDHV-MB scrap steel dropped by 20% in May from last year's peak, smelters increased the use of this material from 8% to 20%, investors and machine said. As a result, due to increased scrap steel demand in June, some traders said their profits doubled.
Factories using electric arc furnaces will be important factors in boosting demand for scrap steel recycling. Currently, the production capacity of these plants is about 100 million tons. Experts predict that within the next 3 years, production may increase by 10-20 million tons.
At the same time, according to Mr. Guo Xianzhen, deputy general director of Anyang Steel Group, said that in the period from August to October, there will be 60 more electric arc furnaces and will increase by 20 furnaces in 2018.
However, the world's fourth largest iron ore mining group Fortescue Metals Group believes that China's iron ore demand will not be able to decline "soon" because the country's scrap steel supply is often tied. with the number of cars nationwide. Meanwhile, the number of cars is still low compared to the huge population of this country.
"Currently, the number of cars per capita in China is only 140 cars per 1,000 people, while this number in Australia and the US is 700 cars per 1000 people."
Some other large iron ore mining companies in the world such as Vale, Rio Tinto and BHP declined to comment on the prospect of scrap steel in the Chinese market to take the throne.
In mid-June, facing the gloomy outlook of the iron ore market, Citi Bank revised its forecast for iron ore price movements over the next 12 months with spot iron ore prices falling to $48 per tonne in the quarter. IV/2017 and 46 USD in the first quarter of 2018.
NDH
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