Downstream recovery to slow down the decline
Pre-lunar trade for diving
China’s readmission of scrap imports set to boost demand
This report is part of the S&P Global Platts Metal Trade Review series, where we sift through datasets and digest some of the key trends in metallurgical coal, iron ore, scrap and alumina. We’re also exploring what the next few months could bring, from changes in supply and demand, to new arbitrages and fluctuations in quality spreads.
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Prices for scrap metal transported by sea started to cool in the first quarter of 2021, after hitting multi-year highs in the fourth quarter of last year as the recovery in steel demand was met with a delay in production. scrap production. The high prices of last year had ultimately squeezed merger margins and dampened buying interest in scrap, leaving prices with nowhere to go but down.
The price correction, however, will not be as intense as the rally in the fourth quarter, market participants said, as shipping scrap prices are expected to find support in the further recovery of downstream sectors and China. reopening its doors to imports of scrap metal.
SCRAP PRICE SEEN SOFTENING, BUT CLOSED OVER THE YEAR
Japanese FOB valuations of S&P Global Platts H2 jumped 59%, or 16,200 yen / mt ($ 156 / mt), through the fourth quarter of 2020, to end the year at 43,500 yen / mt, while Containerized valuations of the HMS I / II 80:20 CFR Taiwan jumped 66%, or $ 177 / mt, to close 2020 at $ 447 / mt. Both indices had reached new heights by then.
These record sea prices had pushed regional factories to buy scrap metal in their respective national markets, only directly importing to regulate the risk. The eventual drop in maritime demand encouraged traders to unwind cargoes long in an attempt to cash “peak” prices, which resulted in a massive sell-off in mid-January.
Nonetheless, market sources expect scrap prices to remain relatively firm year-on-year this quarter, as steady improvement in downstream regional sectors like autos could potentially support demand.
According to data from the Japan Association of Automobile Manufacturers, sales in December 2020 reached 379,896 units, up 10.2% year-on-year.
The commissioning of new capacity and the restart of the furnaces in January could lead to an increase in demand this quarter. Vietnamese Hoa Phat started its No. 4 blast furnace in the Dung Quat complex on January 6, while Japan’s Nippon Steel restarted its No. 1 blast furnace in Kashima on January 19, Platts previously reported.
High iron ore prices can also keep regional steel prices firm for blast furnace producers and indirectly support product margins for scrap-consuming smelters.
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THE MILLS SEEK A REFUGE IN A LOCAL SUPPLY
Market activity in the weeks leading up to the week-long Lunar New Year holiday in mid-February is expected to be sluggish as it coincides with the seasonal slowdown in the construction industry in Asia. However, trade typically increases after the holidays in anticipation of a surge in downstream demand.
âWe might see more buying after the Lunar New Year, when construction activity and therefore demand for steel generally picks up, due to the [Vietnam] lucky month, “said a Vietnamese trader.” But of course that assumes that prices have stabilized after the current correction. “
Regional factories had sought to further supplement their scrap requirements in Q4 2020 nationally following the surge in maritime values ââand at their peak in the week of December 26, 2020, Japan H2 FOB prices commanded $ 85 / mt and premiums of $ 72 / mt over similar quality. scrap delivered to South Korean and Vietnamese factories, respectively, excluding freight charges, according to data from Platts.
Steelmakers in places where scrap metal was plentiful had relied on domestic supply, while steel mills with limited access to available materials had to bid aggressively to ensure what little they could get their hands on. . However, these prices were still lower than those for maritime transport.
Domestic prices of scrap delivered to factories
|South Korea (south)||Vietnam (south)||Taiwan (north)||Thailand (center)||Malaysia (east)|
|Light Scrap||H3 scrap||HMS I / II 80:20||HMS I / II 80:20||Scrap bonus|
|Won / mt||Dong / mt||TWD / tm||THB / tm||MYR / mt|
|September 30, 2020||297,500||6,750,000||7,900||9,800||1,260|
|December 31, 2020||400,500||8,250,000||11,500||11,700||1,590|
|Quarterly change (%)||35||22||46||19||26|
Price of marine scrap
|FOB Japan||CFR Taiwan containerized|
|H2||HMS I / II 80:20|
|Yen / tonne||$ / ton|
|September 30, 2020||27,300||270|
|December 31, 2020||43,500||447|
|Quarterly change (%)||59||66|
|Source: S&P Global Platts|
Scrap Metal Price: Where do you see HMS I / II 80:20 CFR Taiwan container prices ending in Q1?
– Platts Metals (@plattsmetals) January 22, 2021
As the scrap pickup drove margins down, buyers took a conservative stance and suspended purchases at high multi-year prices, in an effort to hedge against the possibility of a steel price correction. while the scrap was on the water.
That led the number of scrap metal shops destined for Asia to drop 30% in the fourth quarter of 2020 to 246, from 349 transactions in the third quarter, according to data from Platts.
CHINESE ON-DEMAND TRADE
China had banned imports of scrap metal from December 31, 2018, in an effort to prevent unwanted material from being dumped on its shores. However, limited access to imported scrap subjected its buyers to relatively higher prices until 2019, leading local industry players to call for the ban to be lifted, and effective January 1 of this year. year, China again authorized the import of scrap metal.
Since the start of the new year, there have been few economic incentives for Chinese buyers to import scrap metal, but this reintroduced demand is expected to support prices in the future.
On January 22, Japanese-origin HRS 101 scrap bids to China were $ 465- $ 470 / t CFR Jiangsu, down $ 15- $ 20 / t on the week, while domestic prices from the big factory Jiangsu Shagang delivered prices for Heavy No.3 scrap metal of similar quality. , was unchanged for the week at $ 440 / mt on an import parity basis, according to Platts calculations.
âWe are keeping an eye on the Chinese market now and expect more transactions to occur once prices are matched to both buyer and seller,â a Japanese trader said. “This will support prices in the longer term as the market will then have an additional source of demand.”
Over the next few months, the deals will largely depend on Japanese sourcing, as Japan was China’s largest scrap supplier over the 2010-2020 period, accounting for 19.4 million tonnes, or 59% of its imports. total scrap, according to Chinese customs data.
S&P Global Platts Metal Trade Review: MET COAL | IRON ORE | SCRAP | ALUMINUM