WSJ
There is more than one reason iron-ore miners and steel producers need to scrap the idea that Chinese demand will save them.
The five-year nadir the price of iron ore reached last week reminded investors that the world's biggest consumer of iron ore, China, is slowing down and doesn't need as much ore to forge into steel. There is another thing to be mindful of: China can soon meet part of its demand by turning to its own scrap metal.
China so far hasn't recycled too many of its old cars, appliances or construction material for fresh use in steel, simply because it didn't have many metallic objects idling around. But China's breakneck growth in the past decade should mean more scrap is available.
For instance, cars can be recycled 5 years to 10 years after production, says CLSA's Ian Roper. So the vehicles purchased by consumers in the automotive buying boom that started in 2009 may soon make their way to steel furnaces. China last year boasted 127 million registered cars and trucks on its roads, from 27 million a decade ago, according to data provider CEIC.
The new local supply of scrap is already making its presence felt in trade. Imports of iron-related scrap between January and July fell by nearly half from last year. And they are a fifth of the amount in 2009, when China needed all the steel it could get as the government sought to stimulate the economy.
Mr. Roper estimates that by 2020, China's total scrap supply will reach 200 million tons a year, or about a quarter of what the Chinese government thinks its peak steel consumption will be. Scrap accounted for just 18% of steel use last year.
More scrap should mean that China needs less iron ore to process into new steel, especially because a 40% export duty on scrap keeps this recycled material at home. Of course, China could process that scrap into finished products that it exports abroad, so more Chinese scrap could succeed in hurting steel prices worldwide.
Iron-ore miners and steelmakers may wish that China's old cars and washing machines just rust away. In reality, they are here to stay in one form or another.
