Indonesia domestic scrap prices surge as collection wanes

Domestic scrap prices in Jakarta rallied strongly over the week, with slower scrap collection and generation driving mills to seek import opportunities or to purchase only on a need-to basis.

Bids for local HMS 90:10 scrap climbed fast from the start of the week, and saw a total increase of Rupiah 200-400/kg ($14-27/mt) to a range of Rupiah 4,200-4,400/kg July 17.

“Collection and generation are slower now, leading to tighter supply. Many factories and fabrication businesses have shuttered, so not much generation left,” an induction furnace steelmaker said.

Meanwhile the sell side was seeing more bustling demand picking up this week for seaborne scrap to Jakarta, but was limited by tightness in supply.

“Many mills came asking for offers and were bidding higher. But suppliers from Australia, New Zealand and even the UK are holding back offers,” a regional trader said, elaborating that the overall uptick in containerized scrap prices across Asia means sellers want to wait for stronger prices to come.

Sluggish steel sales squeezing margins

Adding to steelmakers’ woes has been dismal local sales for construction steel, with some steelmakers saying they have reduced production levels to below half of full capacity.

“Our rebar production rate this month is down to just 20-30%; order volumes for the next few months have been looking very small,” a Jakarta based steelmaker said. “We have only 6,000 mt of orders for the month of August, and we have about 30,000-40,000 mt of rebar in our inventory.”

The source noted that even with the spike in domestic scrap prices, purchasing requirements are limited as their scrap inventory remains as high as 15,000-20,000 mt.

“Even if we move to [scrap] imports, prices are not cheap either because of the import regulations that are still in play,” the source added.

With daily coronavirus infection cases still trending upwards, another mill source was not optimistic about the prospects for the Indonesian economy, citing reduced purchasing power, cash flow issues, and uncertainty for both businesses and individuals, which ultimately weighs on steel demand across manufacturing and construction.

Indonesia’s manufacturing industry is stuck in the doldrums. Although the country’s purchasing managers index rose to 39.1 in June from 28.6 in May, it was the fourth straight month of contraction in factory activity.

The automotive industry, a major end-user of steel, saw June sales down 78.8% year on year to 12,623 vehicles although this was up from just 3,551 vehicles in May, data from the Indonesian Automotive Industry Association, or Gaikindo, showed.

Gaikindo’s data also showed that 17,616 vehicles were produced in June, up from 2,510 vehicles in May but a 74.4% plunge from 68,807 vehicles in June 2019. With the June data tallied, Indonesia’s H1 vehicle output amounted to 369,545 units, down 37.5% from 591,731 units in the corresponding six months of 2019.
Source: Platts