What changed in scrap steel use in September?

  • Citi estimates that China’s implied scrap steel use rose 14% year on year in September 2026; it was nevertheless down 4% year on year in the first three quarters, while crude steel output fell 1.91% over the same period.
  • Average daily implied scrap steel use in the first three quarters was 350 thousand tonnes, below the 370 thousand tonnes in the same period of 2025 but above the 340 thousand tonnes for the full year 2025. Comparisons across periods need to account for seasonality: scrap collection and supply are usually weaker in the second half of the year.

Why does scrap steel affect iron ore demand?

  • Citi estimates implied scrap use in steelmaking by subtracting pig iron output from crude steel output. Lower scrap use means steelmaking relies more on pig iron, thereby supporting iron ore demand.
  • From 2023 to 2025, China’s steel output and apparent demand weakened, but iron ore imports rose year on year by 7%, 5% and 2%, respectively. Citi believes the decline in implied scrap use explains a substantial part of the divergence.
  • Implied scrap use fell from 153 million tonnes in 2024 to 125 million tonnes in 2025. The latter was about 340 thousand tonnes per day, below the roughly 460 thousand tonnes per day seen after 2015. Following the return to year-on-year growth in September, this support for iron ore demand has begun to weaken.

Can scrap steel use continue to recover?

  • Citi had previously assumed that implied scrap steel use would increase year on year for the full year 2026, but the first half was weaker than the bank expected, and cumulative use in the first three quarters was still declining.
  • Citi speculates that lower steel prices have made some electric arc furnaces unprofitable, which may partly explain low scrap use. The bank also notes that scrap use is usually higher from March to May and falls from summer through winter; it expects use may remain relatively high over the next few months before declining.