Container shortage hits global scrap exports

A slowdown in manufacturing activity in China due to the impact of the coronavirus has rippled through the metals supply chain, causing congestion at ports and along major shipping lines, resulting in reduced container availability and higher freight rates for exporters of ferrous scrap across the globe.

The impact from reduced container availability and rising freight rates is squeezing the margins of US and European exporters, restricting scrap shipments to all Asian markets and lifting delivered prices for scrap products across the region.

The sudden halt to business in China caused by the coronavirus drove the Chinese government to issue force majeure certificates to companies impacted by the stoppages. A large backlog of container vessels subsequently built up at Chinese ports.

As result, the number of containers leaving the country has been severely impacted, which has had the knock-on effect of limiting the availability of containers for export across the world.

Container utilization rates for outbound vessels from China in some cases have fallen below 10pc, according to one US freight forwarder. Essentially, container carriers that are able to leave China are doing so with virtually no containers on board.

Faced with fixed costs and lower vessel utilization rates, shipping lines have been forced to pass down the costs through the supply chain, with some shipping lanes also reducing ship size to smaller vessels to boost utilization.

Multiple sources across several regions told Argus this week that shipping companies are prioritizing container allocation to other, more profitable commodities than scrap, further limiting availability of boxes to scrap exporters.

The lack of container availability has resulted in hikes in rates for all container sizes across all major European and US scrap exporting regions over the past three to four weeks, with further increases expected in the coming weeks.

Asia container rate rise threatens tight ferrous margins

Some containerized ferrous scrap shippers in the US have seen 20ft and 40ft container rates rise between $50-150 per container in mid-February.

An additional $100 per 20ft container increase from one shipping company to all far east and southeast Asia destinations, effective at the beginning of March, could further exacerbate freight impacts on the trade for some scrap suppliers.

"March rates are up $100 per container. That's a big jump and it's significant especially when some of these grades are traded with such tight margin," one US east coast trader said.

Others shared similar views, noting that margins in the ferrous scrap containerized business are already very slim for traders, with some operating on $2-4/t.

"Two dollars is the amount we make when we sell ferrous containers, but out of that we have costing and need to pay documentation," a second US east coast trader said. "Ferrous is a volumes game, economies of scale."

A UK-based trader of containerized ferrous scrap to south Asia said rates for 20-24ft containers have increased by $250-300 per container since the start of the virus outbreak through to 15 March and could rise by a further $150/t after that date. It estimated the increase to date as equivalent to a $12/t increase in the cfr price.

An India-based trader said the total increase in rates from Europe to India and Pakistan is $600/t, translating to about $22/t.

As higher freight rates hit US exporters' bottom line, some are taking to the sidelines, waiting for overseas consumers to hike prices in order to cover the rising fees.

This is most evident in the Taiwan containerized ferrous scrap import market, from which smaller US suppliers stepped back this week. These exporters are not currently willing to offer, even in a rising market, as they do not want to take the risk of absorbing additional freight costs that could rise once deals are concluded.

Large US exporters are better able to absorb this risk and are continuing to offer to Taiwan. But the disruption to container shipments means that Taiwan mills have been informed that end of February loading cargoes could be pushed back to end of March.

Based on Taiwan containerized ferrous scrap imports in late February-early April in 2018 and 2019, these delays could affect up to 400,000t of tonnage, Argus estimates.

The higher freight rates have combined with a wider upturn in global ferrous scrap prices to drive Asian containerized import prices sharply upward. Container shred prices cfr India and Pakistan have moved up by $10-20/t since 7 February, while the Argus containerized HMS 1/2 80:20 cfr Taiwan assessment rose to $243/t today, up by $28/t from 17 February.

Japanese scrap exporters are looking to take advantage of this container disruption by filling the gap with shipments to Taiwan via small bulk vessels. Suppliers from Japan pulled offers yesterday after learning about the container shortage and returned to the market today with offers for H1/H2 50:50 at $255-258/t cfr, up by an average of $8.50/t from $245-251/t on 19 February and by $15.50/t from 18 February.

Taiwan mills are not overly concerned about the container shortage for March as their inventories are strong and they have substantial volumes already waiting for discharge at ports.

But US sellers are also not overly perturbed, as some anticipate they will be able to secure new shipping bookings by the end of February and that they are in position to lift export prices further based on expectation that their domestic markets will move up in March.

By Ronan Murphy, Brad MacAulay and Terry Chuay