The global iron ore mar­ket has a junk prob­lem

The Myanmar Times - - International Business -

THE global iron ore mar­ket’s junk prob­lem just got worse. China’s push to clamp down on pol­lu­tion is giv­ing ex­tra im­pe­tus to the use of scrap in steel-mak­ing, strength­en­ing a long-term trend that sees mills in the top pro­ducer pro­gres­sively fa­vor re­cy­cling over the raw ma­te­rial.

With tighter emis­sion lim­its, im­proved fur­nace tech­nol­ogy and out­put curbs, mills are us­ing more scrap than ever be­fore, ac­cord­ing to Goh Kian Guan, chief in­vest­ment of­fi­cer at re­cy­cler Chiho En­vi­ron­men­tal Group. If a steel­maker is caus­ing too much pol­lu­tion, “there’ll be a chance they will be shut down, or asked to re­duce pro­duc­tion,” Goh said in an in­ter­view from Shang­hai.

While China is the world’s top iron ore im­porter, tak­ing car­goes from Aus­tralia and Brazil, mills in the coun­try have been steadily rais­ing the amount of scrap they use as the na­tion’s stock of junk in­creases, with more build­ings torn down and ap­pli­ances jet­ti­soned. That drawn-out shift matches a pat­tern seen in more de­vel­oped economies. But on top of the long-term trend, pol­i­cy­mak­ers in Bei­jing have em­barked on a great clean-up, es­pe­cially tar­get­ing air pol­lu­tion, and en­cour­ag­ing ex­panded use of scrap dove­tails with that ini­tia­tive.

“They are very care­ful,” Chiho’s Goh said, re­fer­ring to main­land mills. “They play by the book and try to com­ply.” And as steel­mak­ers out­side China are also us­ing more scrap to avoid car­bon taxes, he ex­pects the global mar­ket will tip to use more scrap, in­stead of iron ore, in 2020.

China’s en­vi­ron­men­tal pol­icy has helped to boost scrap us­age, ac­cord­ing to the Bureau of In­ter­na­tional Re­cy­cling, a Brus­sels­based fed­er­a­tion than groups pri­vate sec­tor com­pa­nies and 36 na­tional as­so­ci­a­tions. Most blast fur­naces have in­creased scrap in­put, and many elec­tric arc fur­naces, which process scrap into steel, are be­ing in­stalled, the bureau said in an email.

Re­cy­cled steel scrap gen­er­ated 19.5 per­cent of crude steel out­put in the first half, up 4.6 per­cent­age points from a year ear­lier, Li Shu­bin, sec­re­tary-gen­eral of China As­so­ci­a­tion of Me­tal Scrap Uti­liza­tion, said last month. In the pe­riod, scrap used for steel pro­duc­tion rose 41 per­cent to 87.7 mil­lion tons, Li said.

As mills tar­get greater scrap con­sump­tion, prices have surged. So far this year, heavy steel scrap has av­er­aged 2,530 yuan ($363) a met­ric ton in the steel-mak­ing hub of Tang­shan, ac­cord­ing to Shang­hai Steel­home E-Com­merce Co. That com­pares with 1,935 yuan last year and 1,458 yuan in 2016.

Scrap us­age re­duces the use of coal and iron ore, and cuts emis­sions and out­put of solid waste, ac­cord­ing to the China as­so­ci­a­tion. Us­ing scrap in­stead of iron ore can also re­move the need for sin­ter­ing – the pol­lut­ing process by which grainy fines are stuck to­gether for use in fur­naces. By 2025, the as­so­ci­a­tion aims for scrap to ac­count for 30 per­cent of steel pro­duc­tion.

Steel prod­uct prices have ral­lied too – with spot re­bar in China head­ing for a sev­enth monthly gain in Oc­to­ber – as the anti-pol­lu­tion drive re­strains in­dus­trial ac­tiv­ity, crimp­ing sup­ply. That’s aid­ing mills’ prof­itabil­ity and in­cen­tiviz­ing steel­mak­ers to beef up the pro­por­tion of scrap used in blast fur­naces to but­tress pro­duc­tiv­ity. In ad­di­tion to us­ing iron-rich ores, op­er­a­tors have been rais­ing the por­tion of scrap in their feed-stock to as much as 30 per­cent from about 10 per­cent, ac­cord­ing to Gold­man Sachs Group Inc.

China im­ports more than 1 bil­lion tons of iron ore a year from min­ers in­clud­ing Rio Tinto Group and BHP Bil­li­ton Ltd. The flows sup­ple­ment lo­cal out­put, which has dropped as min­ers also face dis­rup­tion from the en­vi­ron­men­tal push. Aus­tralia’s gov­ern­ment ex­pects im­ports to shrink 1.5 per­cent next year and 2.1 per­cent in 2020 as China’s steel pro­duc­tion peaks and scrap use rises.

Scrap us­age may dis­place 200 mil­lion tons of an­nual iron ore con­sump­tion by 2030, ac­cord­ing to Ian Roper, head of in­ter­na­tional busi­ness at Shang­hai Me­tals Mar­ket. It is only a mat­ter of time be­fore China par­al­lels most de­vel­oped economies, where at least 40 per­cent of steel is made from scrap, he said.

“That’s what I like to joke as the rusty nail in the cof­fin for the iron ore in­dus­try,” Roper said, adding that life cy­cles of in­fra­struc­ture in China are get­ting shorter. “Given that the scrap is lo­cal, and that iron ore is im­ported, we think that the gov­ern­ment is go­ing to push for scrap con­sump­tion.”

China’s aims for scrap us­age could have an “enor­mous” im­pact, ac­cord­ing to Kal­lan­ish Com­modi­ties Ltd. an­a­lyst To­mas Gu­tier­rez, who fore­casts de­mand for iron ore may fall by up to 20 per­cent by 2025. “And when some­thing enor­mous hap­pens in China, the reper­cus­sions tend to be felt around the world.” – Bloomberg

Photo: EPA

Steel coils at the port of Bre­men, north­ern Ger­many.

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