Coronavirus dents Indonesia ferrous scrap import demand

Indonesian demand for imported ferrous scrap has been significantly dented by the outbreak of the coronavirus, which has disrupted operations at the country's induction furnaces.

Multiple traders of containerised scrap to Indonesia told Argus over the past three days that demand from Indonesia for new purchases had dropped to almost zero.

Some said demand has dropped because of disruption to operations at induction furnaces, which comprise a significant chunk of the country's steel capacity. Overall Indonesian crude steel output totalled 5.5mn t, according to World Steel Organisation data.

Indonesia's induction furnace (IF) capacity is dominated by Chinese businesses, which relocated large volumes to Indonesia following China's prohibition of IF usage for steelmaking in June 2017. This eliminated 140mn t of Chinese steel capacity, much of which was subsequently shifted to southeast Asian countries.

Many of these IFs continued to be staffed by predominantly Chinese workforces even after relocating to Indonesia. Consequently, operations at these IFs have been negatively impacted by the coronavirus outbreak, as a large number of employees travelled to China for the lunar new year holiday and have subsequently been unable to return to Indonesia because of domestic and international travel lockdowns.

Indonesia halted all flights to and from mainland China from 5 February and has barred visitors who have been in China for 14 days from either entering or transiting the country.

Demand from Indonesia for imported scrap has not halted completely — at least one European exporter sold there last week and the larger blast furnace and electric arc furnace operations in the country are less likely to have been significantly disrupted by the coronavirus outbreak.

But global exporters will keenly observe the situation, which comes just two and a half months after Indonesian imports of containerised ferrous scrap were halted in November amid the implementation of new regulations.

The moratorium was subsequently lifted in mid-December, but the absence of Indonesia from the import market released sufficient additional supply to weigh on south Asian markets in particular, which are largely served by the same suppliers.

Argus assessments for imported south Asian ferrous scrap prices increased by around $20/t between 22 November and 20 December, compared with a $26.50/t rise in the HMS 1/2 80:20 cfr Turkey price over the same period. The Indonesian moratorium combined with relatively weaker demand in India and Pakistan was cited as a driver for the lower prices compared with Turkey.

Indonesia imported 2.41mn t of ferrous scrap in January-November 2019, up 12.13pc from the same period in 2018, customs data show.

The new disruption to Indonesian scrap imports is likely to have less impact on south Asian containerised scrap prices in the current market, as demand in all three of the region's buyers is much stronger than in November and December.

Sustained Indian demand has kept imported containerised scrap prices strong relative to Turkey throughout the wider global price decrease from 1 January to 5 February and appetite has strengthened in Pakistan and Bangladesh over the past seven days.

Consequently, one trader said the Indonesian absence is unlikely to suppress south Asian containerised prices for obsolete grades and shred.

But Indonesia is a major buyer of prime grade scrap and the fall in demand from the country has already had a knock-on effect on UK ex-works prices. A trading firm said today that it received an offer of prime grade scrap at £191/t ex-works from a seller that last week was offering around the £200/t mark.

By Ronan Murphy