Taiwan's summer ferrous scrap imports are expected to fall by a greater degree than the typical seasonal downturn with increased restrictions on electricity use, severe water shortages and maintenance at steel mills.
Steel production in Taiwan usually falls by around 15-20pc during the summer as the government restricts mills' daytime use of electricity. But production this year is expected to drop by as much as 25-30pc, depending on which area a steel mill is located in and the number of additional factors they are subject to.
Taiwan's government has sought to cut down the country's reliance on nuclear power by reducing its share of the overall energy mix and increasing power generation from wind, hydro, solar and natural gas.
But the infrastructure to manage this shift is not yet fully built, market participants said, prompting electricity shortages that caused two blackouts across the whole of Taiwan during May, affecting commercial, industries and residential areas. Each blackout lasted about 8-10 hours. Shortages at any one power plant affect the whole network because of their interconnection.
Taiwanese power plants were also caught out by higher than expected electricity consumption by the general population last month, which exceeded an estimated surplus. Different regional governments might request steel mills to stop production for days at a time if they anticipate any shortfall in electricity supplies this summer. This could happen in any region should they anticipate any shortfall.
Mills cut scrap requirements
The anticipated lower than usual summer steel use has caused Taiwanese mills to reduce their requirement for import scrap shipments over the next two months.
The Argus daily containerised HMS 1/2 80:20 cfr Taiwan assessment fell by $40/t to $440/t between 24 May and 2 June as mills' demand weakened. This seasonally weaker demand affected the bulk Turkish import scrap price but the fall was significantly more limited, with the Argus daily HMS 1/2 80:20 cfr Turkey assessment falling by $16.60/t from $517.60/t on 24 May to $501/t on 2 June.
The strength of US domestic scrap markets, combined with higher Japanese export prices, halted the fall in the Taiwanese import market and pushed the cfr Taiwan HMS 1/2 80:20 price back up to $450/t over the past three weeks. But the increase has still been limited, with US sellers again struggling to attract interest from Taiwanese buyers with offers in a $460-465/t range last week.
Japanese H1/H2 50:50 offers were at $520-530/t cfr Taiwan on 18 June, $70-80/t higher than the most recent US container sales done last week.
Given that Taiwanese buyers have zero interest in purchasing Japanese scrap at this price, and that the typical competitive spread between these Japanese and US grades prior to this year was $15/t, US exporters should theoretically be able to successfully lift offers to $490s/t cfr Taiwan at the very least. Their inability to do so reflects the weakness of Taiwanese steel producers' short-term requirement for imported obsolete scrap.
Domestic scrap supplies to mills has remained firm as suppliers are anxious to sell in anticipation that mills will slow down their intake because of lower demand with ample inventories. Domestic scrap prices equivalent to HMS 1/2 80:20 are currently at NT$11,700-11,800/t ($418-422/t) with no adjustment in the past four weeks, $24-28/t lower than the current import price.
Taiwanese mills are also increasingly looking at other alternatives to scrap for raw material inputs. If seaborne pig iron or billet prices drop to a level that mills feel have an advantage over scrap, they will switch their focus to buying these products. But any move to increasing billet imports in particular will leave Taiwanese steel producers even more exposed to movements in the Chinese steel market, which remains volatile for now.
