Steel Scrap Prices Fluctuated Wildly in May, Expected to Narrowly Fluctuate in June

In May, domestic steel scrap prices narrowly fluctuated. As of May 31, steel scrap prices in Zhangjiagang were 2,500 yuan/mt, stable compared to the end of April. Turkey is the main source of China's steel scrap imports. Historically, Turkish steel scrap prices have been lower than the domestic steel scrap prices. As of May 31, Turkish steel scrap prices were $395/mt, equivalent to 2,808 yuan/mt, 53 yuan/mt lower than the purchase prices of Shagang Group, with the price difference largely flat MoM.

In May, domestic ferrous metals prices surged first and then fell. In the first half of the month, production resumptions of steel mills drove up the prices of iron ore, coke and coking coal, supporting the continuous increase in steel mills' cost levels, and overall steel destocking was relatively smooth. Meanwhile, real estate policy support was further strengthened. In late May, destocking of plates became increasingly difficult, and CRC and HRC inventories tended to accumulate. Moreover, there were rumours of production restrictions on crude steel at the end of May, causing iron ore futures to plunge and thus resulting in a significant drop in ferrous metals prices at the end of May.

Steel scrap prices are expected to fluctuate rangebound in June. Steel mills' output will remain at a high level, supporting the prices of iron ore and coking coal. The unstable production of domestic coal mines will lead to a further upward trend in coking coal prices. With the overall destocking of steel maintained, the support for ferrous metals prices will be solid. Considering the off-season and high output, steel prices are unlikely to rise significantly. Therefore, steel scrap prices in June are expected to face pressure and support, fluctuating narrowly.