Volatility and unpredictability the new norm for Asian scrap markets: Jaguar
The extreme volatility and unpredictable changes in the Asian ferrous scrap market over the year and half since the coronavirus started rampaging through the global economy are likely to continue at least through the second half of this year, Akshay Kharbanda, director at regional ferrous scrap trading firm Jaguar Steel and Coal, told S&P Global Platts in an interview.
“A multitude of factors continues to drill into the markets, and volatility unfortunately is expected to last through the year,” he said. “Giant stimulus packages injected into various economies, demand and supply imbalances, extreme freight prices and container shortages, record-high steel prices, and even constant changes to government policies… are all part of the many factors that makes the market so unpredictable.”
One thing that does seem fairly certain however is that prices will continue at multi-year highs, albeit with sharp moves likely.
“Scrap has been more expensive since COVID hit… prices are already elevated by $200/mt [compared with 2019]. Earlier this year we’ve also seen how some prices can jump $25-$30/mt just within a week,” he noted. “Volatility is high, and this is the new environment that the scrap market has to work with.”
Platts Asian indexes for seaborne scrap show increases in a range of $183-$216/mt as of the end of June versus Dec. 31, 2019, with notably sharp week-on-week increases observed in February and May of this year.
Container shortages, high shipping freights, scrap demand outpacing supply, and the recent hype around Chinese import demand are the primary reasons why prices are likely to be sustained through the second half of 2021, according to Akshay.
“If you noticed, buyers can be holding back from the CFR markets for a couple of weeks running, but seaborne prices still would not falter, it is no longer like before. This is the new norm,” he said.
Akshay pointed to East Asian markets as the brighter spots within the wider Asian market, driven by stronger steel markets particularly in Japan, South Korea and Taiwan, but given the uncertainty over COVID he was reluctant to make firm predictions for Q3 and Q4.
“For the rest of Asia, with the subcontinent included, however, it really boils down to how the respective economies recover,” he said. “With better economies, we’ll see better steel demand, and hence scrap will flow there too. But who can say for certain if the pandemic would, or would not, flare up again?”
This echoes sentiments expressed by other market participants, with both steelmakers and traders adopting more “reactive” rather than “predictive” strategies of late.
Akshay said that through the tumultuous period, JSC has nonetheless adapted its global business by setting up local offices in various locations or ramping up output in existing ones.
Its 2020 Taiwan sales grew by 76.2% year on year and in February it set up a local office there to develop client relations, JSC said.
Still, as with many trading firms, the company’s 2020 performance was not spared from the pandemic’s effect. JSC’s overall 2020 trade volume in ferrous scrap fell 17.0% year-on-year to 668,000 mt.
Looking ahead, the company is planning to expand its sourcing presence in the Middle East during the second half of 2021, as it seeks to tap opportunities to sell HMS grades to nearby India amid dwindling export volumes of European shredded material.
“This is how we have to get around the changes. Europe’s domestic markets are strong, and they are consuming the shredded scrap within,” he said. “Our buyers, they too had to change their scrap blends in lieu of the widening differences between prime grades and lighter ones.”
Akshay added that the premium that prime material such as HS, PNS, Shindachi, busheling commanded previously to lighter grades has since Q2 blown up on the back of multi-year high prices in the flat products market, particularly HRC.
This was also reflected in the Japanese export market to Asia, where HS and H2 prices have expanded from a premium of just Yen 2,000-3,000/mt ($18-$27/mt) in January to Yen 10,000-14,000/mt currently, according to Platts data.
“Prices of prime grades are expected to stay strong, so long as HRC prices continue to remain at insane levels. So we must facilitate new solutions for our clients, such as providing more HMS options from the Middle East instead.”
JSC also plans to expand its trading services to the Turkish markets, targeting shortsea trades within the region by January 2022.