Scrap supply becomes increasingly important for China

25 May 2023 – China needs more steel scrap. The necessary standards are now to be adapted for this. This is of immense importance for many manufacturers. EAF capacity in China is to be expanded to 400 million tons of steel and stainless steel per year. Aluminum imports to China rise significantly. Commodities bull Goldman says ‘we were wrong’ but sticks to its assessment, because largest commodity destocking process in history should soon be over.

Scrap supply becomes increasingly important for China

China already uses more than 60 million tons of scrap per year as a raw material in steel production. With plans for China to produce 400 million tons of steel per year via the EAF route by 2035, CISA, the China Iron and Steel Association, has recently initiated a revision of the standards for scrap and futures trading on the Dalian Commodity Exchange (DCE).

To make scrap imports more attractive

CISA’s intention with the revision is to make imports of scrap into China more attractive and easier, thus meeting the industry’s desire for re-regulation. CISA also has its eye on direct competitors, such as India, which already import significantly more steel and stainless steel recycling material and already rely more heavily on EAF production than the People’s Republic.

EAF steel production with high advantages

The advantages of a high recycling material input in EAF are also clear. Once from environmental aspects. The higher the percentage of scrap, the lower the CO2 emissions. But there are also weighty economic reasons for increasing the production of steel on the basis of recycled raw materials. The energy input and associated costs for EAF production with almost 100% recycled material are only a fraction of what would have to be used for production on the basis of virgin materials.

Chinese aluminum scrap imports up

The Chinese economy is again demanding significantly more aluminum scrap compared to last year. Imports of aluminum scrap increased by almost 50% in April compared to the same period last year. Alumina imports increased by almost 100% and primary aluminum imports even jumped up by almost 190%.

Commodities bull Goldman says ‘we were wrong’ but sticks to its assessment

Goldman Sachs Group has admitted that its forecasts for a sharp rise in commodity prices in 2023, which we had also postulated, have not materialized so far.

The group also said that end-user demand across the commodity complex had so far shown no signs of recession and that investments in expanding commodity supply were not being realized.

Largest destocking process in history?

However, Goldman Sachs analysts continue to believe that a rebound in commodity prices could occur this year. Currently, the largest destocking process ever in the entire commodity sector would emerge – which, in our perception, has already led to larger and steadily growing gaps in many stocks. We therefore share this view of Goldman Sachs and perceive the same in the behavior of other investors.

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