Weak steel demand, semis imports pressure Asia scrap

Asian seaborne ferrous scrap suppliers face mounting pressure from lower steel demand across most Asian countries and competitive imports of semi-finished steel products into the region.

The impact of the China-US trade dispute has contributed to a wider weakening of Asian economies, where infrastructure project development has slowed and automotive demand has fallen.

Weak domestic steel demand and low prices in Asia have driven electric arc furnace (EAF)-based steel producers to seek cost cuts, with lower scrap prices being their main focus.

East Asia: Sharp price falls

The Argus cfr Taiwan containerised HMS 1/2 80:20 assessment has dropped by $70/t, or 23pc, in the past six months, to $238/t today from $308/t on 22 March, reflecting a drop in demand from Taiwanese steel producers.

This is the lowest assessment level since 2 June 2017.

South Korean mills purchased bulk scrap cargoes from the US west coast at $275-$281/t cfr in the first half of this month, down by $27-33/t from the previous known concluded deal of $308/t in late August. They were also able to drop Japanese H2 scrap prices by ¥1,000/t to ¥26,000/t. South Korean mills will most likely attempt to push scrap prices down further as the bearish domestic and export steel demand outlook persists.

In Japan, scrap suppliers came under pressure from domestic and overseas buyers. Steelmaker Tokyo Steel reduced domestic scrap prices three times in the past two weeks, citing low domestic and export steel demand. Coupled with lower demand for Japanese scrap from South Korean mills, this forced Japanese scrap suppliers to reduce offers in the seaborne market. Bids in the September Kanto tender fell by ¥2,000/t to ¥24,500/t.

Southeast Asia: Competitive steel offers weigh

Vietnamese mills are under increasing pressure to reduce scrap prices as they face rising competition from steel imports and sluggish domestic sales of their own steel products.

Billet offers from Turkey and India were heard at $410/t cfr southeast Asia last week, while suppliers from Malaysia and Russia's far east offered $420/t cfr southeast Asia and $417/t cfr Philippines, respectively. Domestic billet offers in Vietnam were heard at $420-422/t ex works. Japanese mills are known to have offered billet to Taiwan at $405/t cfr Taiwan.

And offers of Turkish material have continued to fall this week. A trading firm offered Turkish billet at $405-410/t cfr southeast Asia, which was met with bids of $390-395/t cfr.

Billet offers from Turkey to southeast Asia are a concern to steelmakers in countries that do not have safeguard restrictions on Turkish products. Cheaper availability of billet gives re-rolling mills in southeast Asia a competitive advantage over EAF-based mills that produce rebar from scrap. This has forced EAF-based mills to lower scrap prices in order to stay competitive.

The flats market is also under pressure. Vietnam's sole coil producer, Formosa Ha Tinh Steel, reduced domestic hot-rolled coil prices by $51/t for November.

The most recent offer of Japanese H2 scrap to Vietnam was $260/t cfr, $18/t lower than the last concluded price of $278/t. Mills were expecting offers to drop after the September Kanto tender result, but suppliers' offers remained unchanged. But a fall in scrap offer levels from US suppliers will place additional pressure on Japanese suppliers. Offers of US bulk scrap were heard today at $263/t cfr Vietnam. But Vietnamese buyers continued to show no interest in this level.

Indonesian steelmakers have taken advantage of the sharp movement in seaborne prices to purchase more scrap from Australia. Australian steelmakers had to divert cargoes to Indonesia after previous sales to Bangladesh at prices of more than $300/t were cancelled by buyers when prices dropped sharply.

Demand likely to stay low until next year

EAF-based producers have been unwilling to purchase large quantities of scrap while prices continue to fall.

Southeast Asian mills expect that Turkish steelmakers have only a small margin on any billet business at current levels with an imported scrap price of $240/t cfr Turkey, which means that Turkish mills with a focus on southeast Asian billet sales will be unlikely to accept a scrap price above that level. The Argus daily HMS 1/2 80:20 cfr Turkey yesterday fell by $7.70/t to $233.30/t.

Consequently, global seaborne scrap prices look likely to remain low until late into the first quarter of 2020. Various holidays in different countries in the December-January period may interfere with buyers' purchasing cycles, making it more difficult for suppliers to do business if demand does not pick up in the near future.

Any further deterioration of steel demand in Asia will likely push the region's seaborne scrap prices lower.