China's ferrous scrap prices are expected to face downward pressure in June, driven by a likely decline in scrap consumption among steelmakers.

Despite the central government's recent introduction of incentive policies to support the domestic economy, steel demand from end-users is still expected to retreat this month. Heavy rains and growing summer heat may cause steelmakers to further rein in production.

As of May 31, China's national composite steel scrap price was assessed by Mysteel at Yuan 2,893.6/t ($406.3/t) including the 13% VAT, higher by Yuan 30.1/t on month. However, entering June, the price has lost some ground during the past few days to reach Yuan 2,866.3/t as of June 4.

Heavy losses on their steel sales in late May had pressed many electric-arc-furnace (EAF) steelmakers to scale back output. The mills may continue to curtail or even halt production in coming weeks unless they see a marked improvement in steel demand, Mysteel warns.

By the end of May, the average capacity utilisation among the 87 independent EAF steel mills under Mysteel's tracking had snapped a five-week rise to drop by 1.47 percentage points on week to 55.93%.

Compared with hot metal, steel scrap remains more expensive as a steelmaking raw material, which will prompt blast furnace steel mills to reduce their use of scrap in production. On June 4, the cost of making steel using scrap among integrated mills in East China's Jiangsu province averaged Yuan 2,533/t excluding the 13% VAT, higher by some Yuan 26.6/t compared with using hot metal, according to Mysteel's assessment.
Domestic steelmakers have been cautious about replenishing their feed stocks due to concerns about lukewarm demand from steel end-users.

As a result, steel scrap suppliers have watched the stocks at their yards steadily mount. By the end of last month, total inventories of processed and unprocessed steel scrap held by the 584 Chinese steel scrapyards qualified by the country's Ministry of Industry and Information Technology stood at 985,880 tonnes – a more than three-month high and higher by 3.1% compared with end-April.

Nevertheless, steel scrap dealers are still facing difficulties collecting scrap materials due to the reduced business activity of steel end-users. This means that scrap availability in the domestic market is far from loose, which will continue to provide some support for the scrap prices.