Steel Scrap Prices Bottomed Out In Late May After Headwinds In Ferrous Metals Market Were Priced In, Wild Price Movement Will Be Monitored In June

SHANGHAI, Jun 12 (SMM) – The domestic steel scrap prices fell before rising in May. As of May 31, steel scrap prices in Zhangjiagang stood at 2,420 yuan/mt, down 90 yuan/mt from the end of April. Turkey is the main source of China's steel scrap imports. Historical data showed that Turkish steel scrap prices have been lower than the domestic prices for a long period of time. Turkish steel scrap prices stood at $392/mt as of May 31, equivalent to 2,776 yuan/mt, which was 83 yuan/mt lower than the purchase prices of Shagang Group. The price spread between the two widened 83 yuan/mt MoM.

A string of Chinese economic data released in May was negative. For example, the growth rate of CPI and PPI slowed down further. Manufacturing PMI slipped into contraction territory. There were frequent debt defaults in the real estate sector. Debt problem of local government in south-west China dented confidence in infrastructure investment. As a consequence, ferrous metals prices slumped. In terms of fundamentals, end-use consumption weakened more than expected, causing steel prices to fall rapidly. Electric furnace steel mills lowered operating rates drastically, while blast furnace steel mills further cut the ratio of steel scrap in their production, hitting steel scrap prices. After falling to relatively low levels, steel scrap prices bottomed out at the end of May, driven by expectations for economic stimulus policies.

Steel industry has entered the off-season in June and macro environment is unlikely to improve, which will put enormous downward pressure on steel scrap prices. However, the downside room of steel scrap prices may be limited in June as negative factors had been priced in last month and market is anticipating possible economic stimulus policies from the government. Steel scrap prices are expected to fluctuate wildly in June.