Electricity Curtailments Impacting Asian Scrap Markets

Written by Damon Sun

The finished steel stockists have been buying finished products the last two weeks.   However, the stockists are still keeping very little inventory on a wait and see mode due to the iron ore price collapse (currently abt $102/dmt).   The current finished product orders should keep the production smooth for the next 3 weeks in China.

Taiwan has been on summer electricity curtailments (no day shift) since May 10th and consequently there is a drop of 30 percent in production.   It is also a main cause why the steel stockists started some buying.   Korea will go on summer electricity curtailments in June.

The free trade agreement (EFCA ) between Taiwan and China, is still in implementation stage.   However, this is a threat to any short term price movements upwards.

There are a large amounts of potential impacts and changes to the global scrap trade.  However, I would think best case scenario is a sideways to slow downtrend on raw material prices.    These impacts:

1.)    South Africa to ban exports of steel scrap starting September.
        a.    Impact will be most felt into India and S.E. Asia.
        b.    Consequently, many India based traders are visiting USA East Coast yards for potential future supply.
        c.    The change in geographical sourcing likely will switch more towards Brazilian scrap yards.

2.)    Ukraine crisis – impacts the future source of billets and scrap mainly to Turkey.
        a.    consequently, many Turkish mills are hedging there bets with some more US East Coast bulk purchases
        b.    Currently at around the $375/mt CFR Turkey with a est $20/mt freight.

3.)    China Iron Ore purchases and the cash liquidity issues (esp with iron ore port stockpiles.

4.)    Mexico impacts on steel scrap flows due to the USITC antidumping on rebar
        a.    Likely excess scrap for exports.

5.)    Indian elections – renewed optimism towards their economy and subsequent strengthening of the currency.

Asian demand for scrap is there but at subdued demand and prices.  The bulk ship scrap trade will find difficulties in traditional markets in Taiwan/China and Korea.

Recent Japan H1/H2 scrap sales to Korea at $345/mt CFR level.  While containerized HMS to Taiwan at $340/mt level.

Barring any major events and developments, it should be a slow decline in scrap prices in Asia on subdued demand.

Article was written for Steel Market Update by Damon Sun of Diado International.

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