SHANGHAI Ferrous scrap trade proved to be challenging this year in China as prices remained under pressure, having fallen for almost three quarters of the year.
Turmoil in Chinas steel markets drove price volatility, leading many companies in this fragmented market to face financial troubles.
While scrap prices in China had largely trended upward since the global financial crisis, average prices this year are on course to drop 20 percent from 2011 levels.
The price swings really demonstrate the volatile course of the market.
The first quarter was disappointing, as the typical seasonal rebound in scrap prices failed to materialize and prices remained steady as demand difficulties in the steel market began to emerge.
But the problems deepened from May to September, as the slowdown in Chinas economy and collapse of its steel and commodities prices gripped the scrap market.
As steel mills cut outputcrude steel production declined 1.7 percent year on year in Augustproducers also wound down raw materials stocks to more cautious levels.
By early September, heavy scrap prices hit a low of 2,350 yuan ($373) per tonne, almost 30 percent below levels seen at the start of the year.
As in the steel market, many traders suffered heavy losses because they were holding high-priced cargoes before prices headed south, and many market participants were forced to suspend operations.
"A majority of scrap companies faced difficulties this year, for their operations were severely affected by the downbeat steel market," a source at the China Association of Metal Scrap Utilization told AMM sister publication Steel First.
Large scrap companies in China, including China Metal Recycling (Holdings) Ltd. (CMR) and Chiho-Tiande Group Ltd., were also hit.
CMR managed to post a 4.3-percent increase in its first-half net profit to HK$1.09 billion ($140.6 million), but Chiho-Tiande posted a sharp 85.5-percent year-on-year drop to HK$45 million, blaming the adverse impact of the dramatic fall in global metals prices, especially in the second quarter.
Imports of ferrous scrap to China more than halved in the first 10 months of the year to 4.17 million tonnes, according to Chinese customs data.
Relatively high import prices hit trade, even though scrap supply wasnt tight in the international market.
As mills struggled to maintain profitability, they became much more sensitive about input costs, and correspondingly more cautious about booking imports. As a result, monthly volumes dropped to 271,451 tonnes in October from a 2012 peak of 539,553 tonnes in April.
Scrap imports to China still serve only as a supplement to domestic scrap supply; according to the China Association of Metal Scrap Utilization, imports accounted for only 3.4 percent of scrap consumption in the first 10 months of the year.
A version of this article was first published by AMM sister publication Steel First.