Global seaborne ferrous scrap prices surpass China's domestic levels

Singapore — Seaborne ferrous scrap prices have risen to multi-year highs, even surpassing domestic levels in China, with global demand outpacing supply, according to S&P Global Platts data.

The Platts TSI HMS I/II 80:20 CFR Turkey index saw prices shooting up to levels of $410/mt as of Dec. 11, up $203/mt since its lowest point in April, when the coronavirus pandemic first hit global markets.

Japanese export prices saw H2 grades on a FOB basis hit $345/mt Dec. 9, surging $147/mt since April's lowest point of the year, and with market sources still holding expectations that the strong bullish sentiment might continue even to year end.

Meanwhile, the containerized scrap market also saw no respite, following the surging trend, amid pressures from the lack of availability of containers and vessel space in Q4. The Platts CFR Taiwan's HMS I/II 80:20 index was up to $380/mt as of Dec. 11, while the Shredded CFR Nhava Sheva index reached $405/mt.

In comparison, Chinese domestic scrap, which global sources see as loosely the world's most expensive scrap market (due to the country's regulations against its imports and exports), was only at $398/mt Dec. 11 for minimum 6mm thick material (taken as PNS equivalent). Delivered volumes to Jiangsu mill, with VAT excluded, were now marking levels below that of most seaborne prices.

"The potential arbitrage seems to be gone now," a Chinese steelmaker said. "We were having high hopes that if country were to allow imports perhaps in 2021, it would entail us to capitalize on cheaper cargoes by importing. Oh how things have turned if international prices continue to stay so strong."

Since Dec. 31, 2018, the Chinese domestic scrap market has lost its correlation with international seaborne price movements, upon the introduction of the nation's import bans and restriction against ferrous scrap.

Together with concurrent export duties of 40% against ferrous scrap exports, this has created a bubble market within the nation's walls, as scrap flows in or out, essentially reached a standstill.

Adding to this, was the insatiable hunger for raw material from the world's largest crude steel producer, which saw steelmaker demand then pressuring domestic prices to shoot up to levels that were deemed the "world's highest" by some international market sources.

Since entering 2019, however, discussion of China's potential reallowance of ferrous scrap imports -- amid proposals submitted by its steelmakers and scrap related associations to the government -- has created piping interest towards a possibility of capitalizing on such potential arbitrage, where its domestic prices have even surged to a spread of around $125/mt against CFR South Korea prices for PNS, according to Platts calculations.

Though with the arbitrage seemingly narrowing, regional market sources have been citing concerns that it could be an indication that international seaborne scrap markets were currently overvalued and overheated.

"It would either be a point where international prices see its peak and readjust back down, or it could also mean Chinese domestic prices would find a way to shoot up," a South Korea trader added. "We have not seen prices so strong for many years now."