Ferrous scrap sellers from Australia and New Zealand are offering increased volumes of containerised cargoes into north Asia at low prices after demand from their traditional main buyers in south Asia dropped on lower consumption caused by the Covid-19 pandemic.
Traditionally, ferrous scrap suppliers from Australia and New Zealand primarily sell to the south Asian countries of India, Pakistan and Bangladesh as steel mills there were willing to pay higher prices relative to other Asian markets. In 2020, India imported 318,000t of ferrous scrap from Australia and 33,000t from New Zealand. Oceania scrap uses the same specifications as the US.
An increased number of ferrous scrap offers from Oceania started to appear in north Asian markets in the last two weeks. Weekly offer and tonnage numbers available from these origins to Taiwan are two to three times higher than usual, and prices have been significantly lower than US scrap offers over the same period. Last year, Taiwan imported around 141,000t of scrap from Australia.
Australian containerised scrap is typically sold into Taiwan at around $5-10/t lower than US equivalent material, but the spread on deals and offers in the past two weeks has blown out to $10-25/t. More Oceania offers are coming in at lower prices, pressuring US and Japanese exporters to drop offers.
US offers were last week at around $475-485/t cfr Taiwan for containerised HMS 1/2 80:20 compared to Australian scrap of the same grade offered at $450-470/t cfr Taiwan. As more offers entered the market, the price competition intensified. The lowest most recent price heard done for Australian HMS 1/2 80:20 is $440/t cfr Taiwan, with the lowest US sale this week done at $465/t cfr Taiwan.
There are several reasons behind the unusually low Australian prices relative to the US. One driver is significantly lower container freight costs for Australian scrap. Geographic proximity means Australian scrap suppliers are usually able to benefit from lower freight rates to Asia than the US, but it is only in the current global environment of heightened container freight costs that the difference is sufficiently significant to translate to a genuinely major difference in cfr prices to Taiwan.
Currently, freight from Australia to Taiwan costs around $600/container for June arrival while freight from the US is $800/container for July-August arrival.
Another driver for the current low Oceania offers is that traders from the region are anxious to move cargo after delaying shipments to south Asia amid a collapse in demand from that region over the past month. Indian, Pakistani and Bangladeshi steelmakers' demand for imported scrap has plunged amid new lockdown restrictions to tackle a vast surge in Covid-19 cases over the course of spring.
Traders that bought Australian and New Zealand scrap in expectation of sales to south Asia in the rising scrap market over the past month now need to offload material as their suppliers in those countries will no longer hold their stock for them at yards after a prolonged extension.
Additionally, the Asian seaborne scrap market has turned bearish with prices falling over the past week and any Oceanian sale now is likely to be higher than one done later. And although profit margins on Oceanian scrap are falling, traders are still likely to generate some profit even at the substantially lower offers relative to the US that have been made in the past two weeks. These offers are only likely to dry up once they enter into loss-making territory.
Increased offers of Oceania scrap will be present in north and south Asia for as long as the south Asia pandemic situation does not improve. As sellers are eager to offload their stocks on hand, more will work on lowering prices to seal deals quickly. Should steel prices in the Chinese market continue to move down, more pressure will be on scrap prices to move in the same direction.
