Global prices hit multi-year highs as demand recovery outpaces supply
Shipping issues support high prices
Chinese domestic prices are now trending lower than some maritime prices
The overheating of international prices is a concern
According to data from S&P Global Platts, prices for scrap metal transported by sea have reached multi-year highs, even surpassing national levels in China, as global demand exceeds supply.
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The Platts TSI HMS I/II 80:20 CFR Turkey index saw prices climb to levels of $410/mt as of December 11, up $203/mt from its low point in April, when the pandemic of coronavirus hit global markets for the first time.
Japanese export prices saw H2 ratings on an FOB basis hit $345/mt on December 9, up $147/mt from the April low point of the year, and sources from the market still expect the strong bullish sentiment to continue through the end of the year.
Meanwhile, the containerized scrap market also saw no respite, following the upward trend, amid pressures from lack of container availability and vessel space in the fourth quarter. The Platts CFR Taiwan’s HMS I/II 80:20 Index reached $380/tonne as of Dec. 11, while the Shredded CFR Nhava Sheva Index reached $405/tonne.
In comparison, China’s domestic scrap, which global sources consider to be the most expensive scrap market in the world (due to the country’s regulations against its imports and exports), was just $398/mt on 11 December for material at least 6 mm thick (taken as equivalent PNS). Volumes delivered to the Jiangsu factory, excluding VAT, now marked levels below those of most maritime prices.
“The potential arbitrage seems to be gone now,” said a Chinese steelmaker. “We had high hopes that if the country allowed imports perhaps in 2021, it would force us to capitalize on cheaper cargo by importing. Oh, how things have turned if international prices continue to stay so strong.”
Since December 31, 2018, China’s domestic scrap metal market has lost its correlation with international maritime price movements, when import bans and national scrap metal restrictions were introduced.
With concurrent export duties of 40% on scrap metal exports, this created a market bubble within the walls of the country, as incoming or outgoing scrap metal flows all but came to a standstill.
Added to this is the insatiable thirst for raw materials from the world’s largest crude steel producer, which has seen demand from steelmakers push domestic prices to levels deemed ‘the highest in the world’. by certain international market sources.
Since the start of 2019, however, discussion of China’s potential reallocation of scrap imports – amid proposals submitted by its steelmakers and scrap-related associations to the government – has sparked interest in the possibility of capitalizing on such a potential arbitrage, where its domestic prices even climbed to a gap of around $125/ton from CFR South Korea prices for PNS, according to Platts calculations.
Although arbitrage appears to be narrowing, regional market sources have raised concerns that this could be an indication that international shipping scrap markets are currently overvalued and overheated.
“It would either be a point where international prices peak and readjust, or it could also mean Chinese domestic prices find a way to spike,” added a South Korean trader. “We haven’t seen prices this high for many years now.”