Asian Scrap Market Pricing Trying to Find Parity with Iron Ore

The following article comes to us from one of our Asian scrap sources, Damon Sun of Daido International.

The Asian scrap market is a bit quiet and continued slow downtrend as scrap metal pricing tries to find parity with iron ore. A rough calculation of scrap to iron ore is a ratio of 3.5 to 1. Therefore, $70/dmt (dry metric ton) iron ore translates to roughly $245/mt (metric ton) scrap equivalent. At moment, the latest prices for containerized HMS (heavy melt scrap) is $260/mt CFR basis.

There are four main factors affecting the Asian scrap markets:

1) Korean mills have been out of the market for about 2 months now.

•    Dongbu Steel, about 1.8 million metric tons per year capacity and about 1.2 million mt/year domestic scrap sourcing.
•    Hyundai small plant 70 million metric ton EAF (electric arc furnace) also shut down.

Results is that Korea has plenty domestic scrap supply and has not been importing.

2) Japan scrap supply – Japan exports roughly 6 million mt/year with main buyers in Korea.

•    With Korea out of the market, the major supply is going to Taiwan.
•    Taiwan imports roughly 6 million mt /year with main sourcing before from USA.
•    USA exports roughly 7 million mt/year out of USA West Coast.

Therefore, with absence of competition of scrap, there is plenty of supply for Taiwan to choose between USA vs Japan scrap.

3) Finished product demand vs China/Russian billets.

•    China replaced Boron Added Billets with Chromium Added Billets (3%) to qualify for the China Tax Rebate of 9%.
•    The Chromium added billets, adds additional costs about $7-$8/mt but is not really qualified for use in Wire Rod due to qualities of being more brittle and harder.
•    Russian Billets with the ruble at 62 to USD, is offered at around $400/mt cfr…

The China/Russian billets basically places a lid on finished product price movements upwards.

4) FX rates (currency exchange rates)  – US dollar has been much stronger against all the major Asian Currencies.

Despite the temporary rise on scrap prices from US East Coast, there are no positive factors to compute into Asian scrap pricing.

Unless some of the above 4 factors changes, I see Asian scrap pricing continued movements towards the parity pricing with iron ore.

Damon Sun, Daido International