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Analysis: Asian ferrous scrap market could be hit by any US steel tariffs

Singapore — The dynamics of the Asian ferrous scrap market could be altered if the US, the world's top exporter, ends up using more of it domestically should President Donald Trump sign the planned steel tariffs into law, market participants say.

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In the short term, global scrap supply would tighten, likely leading to higher prices, although some have also questioned how long the trend would last as US end-users may eventually lose competitiveness after having to buy steel at higher prices than their overseas rivals.

Of the 78.6 million mt of crude steel the US produced in 2016, about 67% was by electric arc furnaces, with the remainder using the basic oxygen furnace route, Bureau of International Recycling data showed. Scrap totaling 56.7 million mt was used to produce the crude steel.

US mill capacity utilization rates could rise to 80% from the 2017 average of 74% following the implementation of the tariffs, a director at a Tokyo-based trading house said.



A source at South Korea's Hyundai Steel said: "The expected increase in scrap usage of US steel mills will naturally cause its export volume to decrease, which will lead to price increases in general due to tighter supply."

A source at a major northeast Asian mill was more specific, saying: "Internally, some are even forecasting an increase of $100/mt in scrap prices going forward."


ASIAN BUYERS SEE HIGHER COSTS


Key buyers of US scrap in Northeast and Southeast Asia said any rise in scrap prices would probably be passed on through higher steel prices, although demand may not have grown to support any rise.

A Taiwanese trader said he expected an increase in scrap prices, but only in the short term. "How much more scrap can [the US] consume themselves [even after an increase in capacity utilization rates]?" he said. "The remaining scrap will still have to be exported and has to be competitive with global scrap prices as well."

Over the past two weeks, Taiwanese mills have raised rebar selling prices by a total of T$500/mt ($17/mt), citing solely higher scrap costs, even though rebar demand has not risen over the same period, company sources said.

Of Taiwan's scrap imports in 2017, 1.22 million mt, or 42%, were from the US, making it highly susceptible to changes in the US.

Vietnam, for which the US was its third biggest scrap supplier last year, at 630,000 mt, or 13%, may have to rely on other sources should the US reduce exports. Japan and Hong Kong were Vietnam's top two suppliers.

"We mainly focus our steel sales to either local or Southeast Asian markets; not very much goes to the US anyway," a source at a major Vietnamese mill said. "However, we're starting to accept more scrap from sources like Hong Kong, and are even more accepting of the quality of Central American scrap now."

A source at Vietnam-based Posco SS Vina said he saw price gains resulting from the tariffs as temporary and largely due to speculation. "Steelmakers cannot keep buying [scrap] at high prices because finished steel product prices are unable to keep up with such big increases."

In South Korea, which bought only 520,000 mt, or 8% of their 2017 scrap imports from the US, a source at Dongkuk Steel Mill told S&P Global Platts: "Although South Korean mills' dependency on US-origin scrap is not high, it will definitely still tighten the scrap supply to South Korea going forward, which would lead to prices increasing."

Another South Korean mill source said Asian market dynamics could change if market talk -- which sources in Taiwan and Vietnam have also heard -- about Russia potentially banning scrap exports from its Far East ports were to turn out to be true.

Japan was eyed as an immediate alternative for supply, although the South Korean mill source said his company was also sourcing scrap from elsewhere including Europe and Canada.

--YunBeom Kevin Seo, kevin.seo@spglobal.com
--Samuel Chin, samuel.chin@spglobal.com
--Edited by Jonathan Dart, jonathan.dart@spglobal.com