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China's dragnet of ferrous scrap smugglers may hit Vietnam buyers hardest

Commodities | Metals | Steel

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Metals | Steel

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China's dragnet of ferrous scrap smugglers may hit Vietnam buyers hardest

Singapore — China's two-day, nationwide crackdown on ferrous scrap exporters who have made false declarations on the item being sold or its value may affect buyers in Vietnam the most, market participants said Wednesday.

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Vietnam, the top destination of Chinese scrap in the first three months of this year, bought 88,367 mt of scrap from the country during that period, General Administration of Customs data showed.

Vietnamese buyers of Chinese scrap are mainly those located in the country's north, and may include Hoa Phat Steel, Thai Nguyen Iron and Steel, Thai Hung Steel and Viet Nhat Steel, market participants said.

Vietnamese sources said the Chinese government's arrests of 245 people across the nation would adversely impact the supply of Chinese scrap, although the impact may be dampened due to how volumes have reduced since 2017, a southern Vietnamese mill source told Platts.

"Northern Vietnamese mills are commonly known to be importing Chinese scrap via in-land transportation, and this sudden move might drive up demand for local scrap, and inevitably lead to a tighter supply domestically," he added.

Vietnamese trade data doesn't list China as one of its scrap sources, so precise information on China's share of the market is unavailable, but its top sources of scrap in the first four months of this year were Japan, the US and Hong Kong.

"Perhaps there would be greater demand for imported scrap from Hong Kong as well in order to substitute Chinese scrap, but it also boils down to price," another Vietnamese mill source said.

Scrap exports from China are subject to a 40% duty, meant to discourage the outflow of a key raw material in steelmaking in a country that is heavily reliant on iron ore imports.

While China exported no scrap in the earlier part of 2016, a steady flow began to emerge after a surplus resulted from the state's crackdown on induction furnaces, which used scrap as raw material. China eliminated 140 million mt/year in capacity of IFs by the middle of 2017.

To avoid paying the 40% duty, some exporters under-declared the value of scrap, Chinese customs said.

"We have even heard that some traders intentionally declared the scrap as other goods in order to benefit from tax rebates," a Chinese trader added. "This messes up the whole system."

The dragnet saw 245 people arrested across the country for alleged smuggling of about 2.41 million mt of scrap worth an estimated Yuan 4.8 billion ($750 million), Chinese customs said.

--Edited by Jonathan Loades-Carter,