Freight rate rise increases pressure on dockside scrap

An expected rise in freight rates for deliveries of ferrous scrap cargoes from Europe to Turkey could drive exporters to lower the dockside collection price in excess of the expected fall in Turkey's import price for April shipment.

Dockside prices in the Netherlands and Belgium are expected to fall over the coming weeks, with the Turkish import price poised to drop following completion of a major re-stocking cycle in January and early February.

Turkish mills have yet to release any bid or firm bid indication for their next purchases. But seaborne scrap market participants expect mills to try to drive down the imported scrap price by at least $10/t to around $310/t cfr Turkey.

Exporters in the Netherlands and Belgium are expected to drop their bids by a similar range in the coming weeks. But a recovery in the global Supramax and Handysize market could drive exporters to cut dockside bids even further to offset higher freight rates.

The Argus freight assessment for scrap cargoes from Amsterdam-Rotterdam-Antwerp (ARA) to Turkey was $12.50-13.50/t on 8 February — the lowest since the launch of this assessment on 6 April 2018 — because of a lack of cargo demand from various regions.

Time-charter rates for Supramaxes were heard offered at as low as $3,500/d for scrap cargoes from ARA to Turkey on 7 February. But rates have slowly rebounded on a global Supramax market recovery, with one Supramax confirmed booked at $6,500/d earlier this week to carry scrap from ARA to Turkey.

Multiple ship owners and charterers surveyed by Argus this week said time-charter rates for Supramaxes could hit around $10,000/d by mid-March, back where they were in November-December.

A $4,000/d hike in time-charter rates would result in a $2.50-4.00/t increase in freight costs for a 30,000-40,000t scrap cargo delivered from ARA to Turkey. A vessel is normally needed for 25 days to make the trip, factoring in loading, transit and unloading.

Several charterers said Handysize rates have also recovered and could rise more sharply than for Supramaxes because of Handysize demand for grain shipments from Europe to north Africa. Handysizes were heard offered this week at $7,500-8,000/d. Many exporters, particularly from the Baltic region and the UK, prefer to sell Handysize cargoes to Turkish mills because of port facility restrictions, operational limitations or strategic reasons.

Resistance from sub-suppliers

Scrap sub-suppliers, especially those that can sell to domestic mills, said they would resist lower dockside bids, as any further cut in dockside prices would leave delivered-to-dock prices below delivered-to-mill prices.

The Argus delivered-to-dock assessment for ferrous scrap HMS 1/2 was €235-245/t on 19 February, while the average assessment for German E1 ferrous scrap delivered to mill for February was €233.04-243.04/t.

A fall in the Turkish import price would put extra downward pressure on German domestic delivered-to-mill prices for March contracts, particularly when concerns over the health of the automotive industry mean steel demand and prices are showing no sign of significant improvement in the near future.

The Argus daily northwest Europe ex-works steel assessment for hot-rolled coil (HRC) was €508/t yesterday, down by €11.50/t from 2 January.

But the German domestic scrap market has limited downside compared with the Turkish import market, as the rise in German delivered-to-mill prices has significantly lagged the rise in the Turkish import price this month.