CRU: Chinese Pig Iron Imports Lift as High Local Scrap Costs Persist

By CRU Principal Analyst Chris Asgill

There has been a marked rise in Chinese imports of pig iron and HBI this year. This has been primarily due to limited domestic scrap supply that cannot be offset by external supply due to restrictions in scrap imports. Limited scrap supply relative to demand has meant that scrap prices in China have become high compared to other markets. Chinese mills have looked to offset high domestic costs by leveraging lower costs for pig iron and HBI in other markets. At this stage, imports have been confined to a few Chinese steel companies and are a small share of Chinese metallics consumption. However, the impact on the international market could be more significant as these “small” volumes represent a significant share of merchant trade. Ultimately, volumes will be capped as international ore-based metallics prices will rise to a similar level as Chinese domestic scrap prices and mitigate the cost benefit currently being gained. That said, international HBI and pig iron prices could become more closely linked to Chinese domestic scrap prices as buyers there enter and exit the market.