Ferrous scrap deep-sea bulk offers to Asia flood in

Global ferrous scrap exporters have rushed to offer bulk cargoes to Asia this week, seeking to take advantage of a fall in deep-sea bulk freight rates and more attractive pricing and demand compared with Turkey.

Offers to Asia from the US, UK and Europe have flooded in over the past two days after the first deep-sea bulk cargo sale to Pakistan in many years was concluded on the evening of 13 June.

UK trading group Atlas Commodities sold a 33,000t full shred cargo to Pakistan at $480/t cfr on 13 June. The cargo will be split among four buyers.

Another UK exporter was heard to offer a full shred bulk cargo at $450/t cfr Pakistan today, while two US exporters were heard to have offers to Pakistan in the market for cargoes containing shred at $440/t cfr and HMS 1/2 80:20 at $420/t cfr.

Pakistan has only imported ferrous scrap by container in recent years, but a sharp fall in bulk freight rates in the Atlantic basin over the past two weeks has opened up a wide discount to container freight rates and made the bulk option much more attractive to Pakistani buyers.

The freight rate for the $480/t cfr sale was estimated at around $60/t compared with $95/t for container shipments from the UK to Pakistan. This has enabled exporters to offer bulk cargoes $30/t below the $510/t cfr Pakistan level at which containerised shred traded at the end of last week.

Critically, this freight advantage has emerged at a time when prices and demand for ferrous scrap in Turkey, the largest deep-sea import market, have dropped significantly relative to demand and prices in Asia.

The Argus daily HMS 1/2 80:20 cfr Turkey price fell by $156.50/t from the start of May to $398.50/t on 10 June and has since shed a further $21.50/t to $377/t today. By contrast, the Argus weekly assessment for containerised shred cfr Pakistan fell by $80/t over the same period to $510-520/t on 10 June.

Suppliers to Pakistan have reported robust demand in the past few weeks that has prevented the price from reacting to renewed Turkish decreases. This demand has been driven by a need from Pakistani buyers to restock low inventories. The start of concerted restocking was delayed by a slowdown in trading during May caused by a fall in the Pakistani rupee to an all-time low against the dollar. Pakistani scrap demand has consequently been high since the beginning of June.

Slim demand from Turkey for July shipment deep-sea purchases coupled with more favourable pricing in other markets have driven increased bulk trading activity to other Asian markets this week.

A continental European supplier was heard to sell a bulk deep-sea cargo on 14 June to Bangladesh containing more than 30,000t of HMS 1/2 scrap at $430/t cfr. A Baltic cargo of 38,000t was sold to Vietnam on the same day.

And an Indian bid for a bulk cargo of around 32,000t of HMS 1/2 material was made to continental Europe on 14 June.

The surge in deep-sea scrap trade to Asia could potentially be short-lived, as the attractiveness of sales depends on bulk freight rates remaining low and for Turkish demand to remain thin, neither of which are likely to be permanent structural shifts. And containerised scrap offers to Asia have already been cut sharply to compete with the lower bulk offers, with container shred already heard offered at $455/t cfr Pakistan today - which will limit the scope for bulk sales volumes to rise further in the near term.

But even once the market normalises, the deep-sea trades done at this time are indicative of rising scrap trade flexibility on the part of exporters and Asian buyers, which could increase the significance of Asia as an alternative bulk export market to Turkey in the longer term.

By Ronan Murphy and Alexander Reynolds

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