China’s heavy imports of copper, steel scrap hurt Korean SMEs

South Korea’s massive exports of scrap steel and scrap copper to China are hurting its domestic companies that are struggling to secure the steelmaking raw materials amid signs of an economic recovery.

According to the Korea Customs Service on May 25, Korea’s ferrous scrap exports to China stood at 28,089 tons in April, a 17-fold increase from a year ago.

In the first four months of this year, Korea’s scrap steel exports to China rose threefold to 47,247 tons from the year-earlier period.

Analysts attribute the dramatic increase to China’s massive imports of raw materials to boost its economy.

China’s steel demand increased 9% in 2020 from the previous year on the back of its government’s economic boosting measures. In the first quarter of this year, such demand rose 15% on the year.

The Chinese government’s efforts to reduce carbon emissions are also contributing to its heavy scrap imports as scrap metal melting at furnaces for recycling generates smaller quantities of greenhouse gases, analysts said.

CHINA BUYS SCRAP AT PREMIUM

The situation for copper scrap isn’t much different.

Korea shipped 8,759 tons of scrap copper to China in April, up 14-fold from a year earlier. For the January-April period, its exports increased sevenfold to 15,804 tons, customs data show.

As China is suffering from a shortage of raw materials, its scrap importers are purchasing Korean scrap at a premium.

The price of 6-millimeter-thick steel scrap exported to China was hovering around 600,000 won ($536) per ton earlier this week, 10-20% higher than those sold in Korea.

In the Korean market, the wholesale price of scrap steel rose to 470,000 won per ton as of May 21, compared to 260,000 won a year earlier.

Local copper scrap prices, which used to be around 90% of the international copper prices, recently rose to nearly the same levels.

In the London Metal Exchange (LME), copper prices rose above $10,000 a ton in early May, compared to $4,772 in March 2020.

WORSENING IMBALANCE

The worsening imbalance between supply and demand for scrap metals created by Korea’s massive exports to China is dealing a blow to small and medium-sized firms in Korea.

A metal casting company in Daegu, south of Seoul, has been posting 1 billion won in loss almost every month as it cannot secure enough scrap steel to manufacture diesel engine blocks and cylinder heads.

“We may have to drastically cut production volumes if the current shortage continues,” said an official of the company.

A local company that makes precast concrete (PC) recently had to drop a 40 billion won deal after the prices of steel bars soared due to the lack of scrap steel.

Industry officials said the Korean government should work out support measures such as limits on scrap exports and lower tariffs on scrap metal imports.

“The European Steel Association (EUROFER) is demanding an export ban on steel scrap to protect companies in Europe. The Korean government may need to take similar action,” said Lee Jae-yoon, a research fellow at the Korea Institute for Industrial Economics & Trade (KIET).

Write to Jin-Won Kim at Jin1@hankyung.com
In-Soo Nam edited this article.