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East Asia mills seeing high priced scrap imports arrive amid falling steel prices

Singapore — Steelmakers in East Asia are facing mounting price pressures, as ferrous scrap bought earlier at higher prices are due to arrive at a time when steel prices have fallen sharply, sources at regional electric arc furnaces said this week.

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Mills that bought scrap from deepsea sources like the US in October at around $355/mt CFR for bulk HMS I/II 80:20 are seeing shipments arrive between end-November to December.

Assuming ferrous scrap input costs of $355/mt CFR, a cost of $170/mt for conversion into rebar, and a mill efficiency ratio of 1.1 mt of scrap to 1 mt of rebar, the cost of making a ton of rebar is $560.50/mt, according to S&P Global Platts calculations. The calculation doesn't yet include port and transportation charges.

Spot prices of rebar in Southeast Asia, however, have sunk about $36/mt, or 6.8%, from October's average to $491/mt CFR Singapore Thursday, Platts data showed, implying a loss on paper of $69.50/mt. Meanwhile, offers of rebar by Taiwan's Feng Hsin Steel have fallen this week to T$17,000/mt ($552/mt) ex-works Taichung, from T$18,300/mt at the end of September, for diameters of 12-32 mm.

Prices of billet have also slumped since October, with spot offers for Q275 square billet on a CFR Southeast Asia basis at $460-470/mt this week, a Malaysian mill source said. This was down at least $44/mt, or 8.6%, from the average of prices in October, at $514/mt, Platts data show.

"There are no margins at all," the source said, echoing the concerns many other mills in the region have.

Thinning margins and losses for some mills in Taiwan led some to consider production cuts in December, as customers have retreated from buying rebar, spooked by fast-falling prices, sources there said.

"Tough times ahead," said a Vietnamese mill source. "We're treading very cautiously and have not bought imported scrap for almost a month now."

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Spot prices of bulk scrap have meanwhile slumped, to be assessed at $336/mt CFR East Asia Wednesday, a decline of about 5.5% from October. Even at these levels, some buyers in East Asia have said they found prices "nowhere attractive enough" amid the currently bearish steel market.

In Taiwan, containerized HMS I/II 80:20 prices have also fallen by 12% since end-September to $295/mt CFR as of Friday. This was the second weekly decline after prices slipped to $298/mt on November 16, the first time they have fallen below $300/mt this year.

--Samuel Chin, newsdesk@spglobal.com

--Edited by Jonathan Fox, newsdesk@spglobal.com