Japanese Q2 prices recover to pre-pandemic levels
Q3 outlook hazy; expects little improvement in demand
Market mulls return of Indian demand
After a volatile second-quarter, the Asian ferrous scrap market is hopeful for the third-quarter, although it remains a struggle to see strong bullish moves within the market.
"Prices have been fluctuating sharply this year, but if you notice the highs are short lived, and the overall direction was trending down," a Taiwanese mill source said.
"Though we do not see much factors in Q3 that could make the situation any weaker than Q2."
Asia's ferrous scrap market sailed through a choppy Q2 as prices surged against weakened steel demand, squeezing melting margins.
Since heading into the April-June quarter, Platts' Japanese FOB assessment for H2 material jumped 36%, or Yen 7,220 ($67/mt), from its trough of Yen 20,000/mt on April 1, to be assessed at a high of Yen 27,220/mt on June 10.
The Taiwan CFR assessment for heavy melting scrap climbed 29%, or $57/mt , from the $198/mt low on April 9, to peak at $255/mt on June 15.
Steelmakers, however, struggled to find the luster in steel sales, as downstream appetites all but disappeared amid the various COVID-19 pandemic-related lockdowns.
Electric arc furnaces in India, Japan, South Korea, Vietnam, Bangladesh, Indonesia, Malaysia, and Thailand had all reported lower production figures as demand slowed to a trickle, while steel inventories kept growing.
Q2 scrap prices, at elevated levels, were unstable and eventually succumbed to market forces, plunging the Japanese FOB and Taiwan CFR assessments by Yen 4,420/mt ($41/mt) and $25/mt to Yen 22,800/mt on July 1 and $230/mt on July 6, respectively.
South Korea, a key scrap importer in the region, reported a dismal Q2, importing only 1.13 million mt, 34% lower from the same period a year ago.
Vietnam's scrap imports slumped 22% to 1.22 million mt, but Taiwan bucked the trend with imports climbing 19% on the year to 0.99 million mt.
Taiwan's construction steel demand was unfazed, contrary to the fate of its regional neighbors, because it had successfully contained the pandemic, allowing its domestic mills to better control rebar prices in line with movement in scrap prices.
Q3: POTENTIAL BULL OVER BEAR FACTORS
For Q3, regional industry sources said the driving force for scrap will be the pace of steel demand recovery, especially since many countries are lifting lockdown measures, eager to jump start their respective economies.
"While pandemic infection numbers may improve in Q3, it may not translate immediately to an economic recovery, which is very important for steel demand," a Vietnamese mill source said. "Governments will need to promote public and private spending, which increases steel demand and production, and hence scrap consumption as well.
"The loosening of monetary policies and various governmental support beneficial to the steel industry would also help steel demand regain its shine.
"Steelmakers are hungry to get back to produce more steel, everyone is just waiting for downstream steel orders to return," a South Korean trader said.
And should there be more restarts and robust production for downstream manufacturing, construction, and reconstruction industries in Q3, it would lead to better scrap generation, and thus improve the overall scrap-to-steel cycle.
Moreover, India's eventual recovery from the pandemic would also provide an added support to scrap demand, "if and only if the situation improves," an Indian trader said.
"[COVID-19] cases continue to climb even higher in July. I have no clue when this will improve and it is still the monsoon season now."
Since India lifted its lockdown on June 1, mills were reportedly ramping up production to make up for sales lost during lockdown, with June crude steel output recording an 18% month on month recovery, while steel exports made a fourfold year-on-year increase, data from the state-run Joint Plant Committee showed.
China, whose demand for imported steel had returned in a timely and strong manner since March, and continuing even in July, has become the backbone of support to some steelmakers in India, Vietnam and Indonesia.
"The market is only so big," a regional trader said, adding that, "India wants to sell, Vietnam wants to sell. Indonesia wants to sell. Even Turkey wants a piece of the China action."
