FOCUS: Smuggling crackdown to boost Vietnamese demand for non-Chinese scrap

Vietnam’s demand for non-Chinese ferrous scrap is likely to increase after a crackdown on smuggling the steelmaking raw material in China, market sources told Metal Bulletin this week.

“This [is likely to] lead to Vietnam increasing its appetite for Japan- and United States-origin scrap if there is less supply from China,” a ferrous scrap trader in Asia said.

Bulk-shipments of Japanese scrap have been negotiated at $350 per tonne cfr Vietnam this week, largely stable in comparison with last week's $348-351 per tonne cfr. Smaller bulk shipments were traded at $340-345 per tonne cfr Vietnam this week.

The Chinese authorities arrested 245 individuals suspected of selling around 2.41 million tonnes of under-reported steel scrap on June 6, according to its customs agency.

A scrap trader in Asia said the impact of the crackdown in China would mostly be felt in the northern part of Vietnam.

“There are business dealings between Chinese scrap suppliers and steel mills in north Vietnam due to their geographical proximity,” he said. “Moving forward, there could be some adjustments in trade flows.”

China discourages ferrous scrap exports by imposing a 40% export tax, as it is considered an essential raw material for its domestic steelmaking industry.

However, Chinese traders have found creative ways to get around the 40% export tax, market sources said.

"Some traders declare ferrous scrap as construction materials. Others simply under-declare the value of their ferrous scrap by quoting low fob China offers," a trader in the Chinese scrap market said. 

China exported 88,367 tonnes of ferrous scrap to Vietnam in the first quarter of this year, including 37,468 tonnes in January, 28,416 tonnes in February and 22,483 tonnes in March.

It also sent ferrous scrap to Indonesia, Japan, Malaysia, Thailand, India and Bangladesh.

But a major scrap buyer said Vietnamese buyers could generally continue to purchase ferrous scrap from other regions, including South Korea, Hong Kong and Chile.

Ferrous scrap from these countries have regularly been landing in Vietnam, he said, although most cargoes were from Japan and the US.

Vietnam imported 392,925 tonnes of ferrous scrap in April, up 23% from 319,098 tonnes a year earlier.

Japan was its largest supplier, accounting for 78,602 tonnes - although this was down from 114,865 tonnes in April 2017.

The US, Vietnam’s second-largest source, supplied 53,182 tonnes in April, up from 8,810 tonnes a year earlier.

Overall, Vietnam imported 1.7 million tonnes of ferrous scrap in the first four months of 2018, a 64.4% year-on-year increase.

And for the whole of 2017, the country imported 4.74 million tonnes of scrap, which in turn was a 21.5% increase in comparison with 2016’s 3.9 million tonnes.

Sources told Metal Bulletin that the increases were due to stronger demand for steel products from the construction and other downstream sectors that are benefiting from Vietnam’s rapidly developing economy.

Among the key steel importers are Viet Nam Steel Corp, Pomina Steel, Tung Ho Steel Vietnam, Vina Kyoei Steel, Hoa Phat Group's steel arm and Posco Vietnam.

According to data from the World Steel Association, China exported 2.2 million tonnes of ferrous scrap in 2017 due to excess scrap supply in the market after 140 million tonnes of induction furnace capacity was shut down. It did not export any ferrous scrap in 2016.

Figures from Metal Bulletin Research showed that ferrous scrap export volumes dropped to 148,670 tonnes in the first quarter of 2018, from 770,000 tonnes in the last quarter of 2017.

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