Financial woes to dull south Asia ferrous scrap trade

Financial crises in Pakistan and Bangladesh will weigh on seaborne ferrous scrap trade this year, while the Indian market is expected to remain largely steady.

Pakistan's deep balance-of-payments crisis, a free fall in its currency against the US dollar and tough conditions for an International Monetary Fund (IMF) bailout will leave the country's steelmakers scrambling to finance import purchases for months to come, members of the Material Recycling Association of India (MRAI) said during its annual conference on 2-4 February.

Pakistan is going to remain absent from the market for some time, MRAI president Sanjay Mehta told Argus. "Their import volumes will go down by about 80pc as nobody will be willing to take the risk amid their economic crisis," he said.

Ferrous scrap trade in Pakistan has been disrupted by issues with securing letters of credit (LCs).

"Even banks in Dubai, which has a good relationship with Pakistan, are not willing to provide LCs. Nobody trusts Pakistan now, nobody will be willing to ship to the country," a trader said, adding Pakistan is not going to be able to come back to the scrap market for a couple of years.

Some 35,000-40,000t of containerised scrap was recently diverted from Pakistan to India because of Pakistani buyers' inability to pay for the cargo, while other suppliers have stopped shipping material to Pakistan, participants said.

Bangladesh better placed

Although dwindling foreign-exchange reserves and issues with opening LCs in Bangladesh have slowed down its scrap trade in recent months, measures from its government and a $4.7bn loan from the IMF last week are expected to turn things around.

"The silver lining for Bangladesh is that they took a lot of tough fiscal policy measures, they restricted the dollar outflow, stopped LC openings for imports and now they've got the IMF bailout," MRAI director Zain Nathani said. "So we'll see Bangladesh returning to the bulk market more frequently now, but don't see them returning the same volumes as they did last year."

"Unlike with Pakistan, the Dubai banking system is supporting Bangladesh for LCs," a second trader said, adding Bangladesh's situation is improving now and bulk sellers are willing to ship to the country even without confirmed LCs.

"Demand is good in Bangladesh and trade will pick up now leading up to Ramadan next month, barring some challenges in the containerised scrap segment due to high freight costs," he added.

But despite the recent reprieve, Bangladeshi scrap volume intake will stay slow amid the fragile recovery of its economy.

Stable India and firm far east Asia

India's imported scrap demand is expected to remain steady this year despite a recent slowdown in trade, participants said. Most of the demand will be driven by the infrastructure sector as the government has committed high capital expenditure ahead of a general election next year.

Indian ferrous scrap imports in November surged more than three times higher on the year to 1.08mn t, as bulk shipments to the country rose.

MRAI conference participants believe that even if bulk shipment volumes decline, India's offtake of imported scrap will remain stable on last year as steelmakers opt for imported scrap over domestic material.

"Markets are neither going to be bullish, nor bearish this year. The recession in the global market will have some impact on demand, but prices are going to remain more or less at current levels," MRAI's Mehta said.

By Sumita Layek