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Rising freight costs add to pressure on Colombian ferrous scrap merchants

Sao Paulo — Pressure has risen lately on Colombian ferrous scrap merchants due tologistics costs, which were already high, increasing yet further due to firmerfreight rates, players said Thursday.

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According to sources, domestic ferrous scrap is currently sold at around$130/mt, around $20/mt lower than in the third quarter of 2017. "Prices areonly that low compared with international markets because logistical andtransportation costs in Colombia are extremely high," one scrap dealer said,adding that such costs varied considerably.

Domestic scrap collectors had to cut their selling prices as the mainbuyers -- steelmakers -- were putting on pressure them for decreases asfreight costs have been growing lately, sources said.

Higher oil prices, labor costs and tricky routes are the main reason forthe transportation issues in Colombia, they say.

Colombia is currently investing $16 billion in the Fourth Generation (4G)infrastructure project, expected to begin in 2016 and last eight years. Itstop initiatives include building and improving over 8,000 km of roads aroundColombia, in addition to construction at airports, ports and railways.

Export prices are higher than domestic levels, but still belowinternational levels. "I'm exporting scrap at $150/mt, just the price for thematerial," one trader said. Volumes were not disclosed.

In comparison, offers for premium heavy melting scrap I/II (80:20)shipments from US to Turkey moved above $325/mt CFR and beyond, reaching ashigh as $335/mt CFR on an 80:20 basis.

Domestic steelmakers are the main consumers of Colombia's ferrous scrap,accounting for more than 90% of the entire supply chain. However, sources saidthere is still not enough scrap for the market at around 1 million mt/year.

"Mills have the capacity to produce 1.8 million mt/year of steel, butoperate at around 70% of that due to the lack of ferrous scrap in thecountry," one market specialist said. "With more scrap available, steelmakerswould increase their production."

Colombia collects most of its ferrous scrap domestically, and all itssteel producers rely on the material to operate. Paz del Rio is the only onethat also uses iron ore in its blast furnace, but it also has an electric arcfurnace.

Logistics costs are a significant issue for the market, depending on thepart of the country where the scrap is collected. The situation does notaffect Colombia's main cities, but it does affect the areas distant from themain production hubs.

Due to geographical issues, with most of the country's landscapemountainous, Colombia lacks enough of the high quality roads needed forlogistics purposes, sources said, which makes freight rates much higher thanthe value of the material being transported.

Most of Colombia's steel mills -- Paz del Rio, Gerdau Diaco, Sidenal andAcasa -- are located in the states of Boyaca, Cundinamarca and Caldas, in thecenter of the country, while others -- Gerdau Diaco, Acesco and TenarisTuboCaribe -- are in the north of Colombia, in the Bolivar and Atlanticostates. Sidoc is located in the west, in Valle del Cauca state.

Colombia has six long steel producers: Votorantim's Paz del Rio unit,Gerdau Diaco, Acasa, Sidoc, Sidenal and tubes producer Tenaris TuboCaribe.

Acesco has a flats rolling mill in the country.

--Guilherme Baida, guilherme.baida@spglobal.com

--Edited by Keiron Greenhalgh, keiron.greenhalgh@spglobal.com