FOCUS: Brazil’s Asia steel scrap export route blooms amid renewed trade opportunities
Brazilian sellers have ramped up containerized exports of steel scrap into South Asian markets over the past year but this explosion in export sales is unlikely to be a long-term trend, sources have told Fastmarkets.
Scrap collectors and processors in the country have traditionally sold the vast majority of their stocks in the domestic market, with only the excess being exported. But waning Brazilian demand and decreasing domestic prices since the second half of 2019 have led them to seek buyers further afield.
South American and European nations had been taking a much larger share of Brazilian scrap volumes before 2019 but Bangladesh has become the main destination of Brazil’s scrap exports in the past few years.
Ferrous scrap exports from Brazil totaled 316,145 tonnes in January-May 2020, up by 63.3% from 193,610 tonnes in the corresponding period of 2019, according to data from the country’s ministry of economy.
Containerized scrap from the country has been offered at very competitive prices to both Bangladesh and India since the start of the year, often enticing mills to opt for Brazilian material over competitors from regions such as the European Union and the United States.
Should Indian demand for scrap continue to rise while mills return to the market following the easing of lockdown restrictions in India, some consumers will find that their traditional suppliers may not be able to fulfil their requirements, and therefore rely on Brazil for this.
The United Arab Emirates, which is the largest supplier of scrap material to India, introduced a four-month scrap export ban from May. The United Kingdom, which is the second largest supplier of material to India, has seen domestic collection rates of scrap fall sharply during its own lockdown period. Combined with a continued shortage of material and strong demand from Turkey, this has pushed up UK prices.
Fastmarkets’ weekly price assessment for steel scrap, HMS 1&2 (80:20 mix), import, cfr Nhava Sheva, India was $250-265 per tonne on Friday June 12, with offers from Brazil falling within this range. This is up from $215-230 per tonne on March 27, which was immediately after India imposed its national lockdown on March 25.
Brazil’s exports to India grew by 89% year on year to 109,743 tonnes in January-May, from 58,072 tonnes. Meanwhile, exports to Bangladesh jumped 41.8% on the same basis of comparison to 107,710 tonnes, from 75,946 tonnes.
Quality and shipment times
Although Brazilian prices have been appealing to South Asian buyers of late, market sources said that there are certain factors limiting still their intake of the material.
A Bangladeshi mill source told Fastmarkets that although he receives regular, competitive offer prices for Brazilian material, scrap produced by Brazil’s shredders is usually a mixed composition of 210- and 211-grade shredded scrap, rather than the higher-density 211 grade which he would prefer.
Clineu Alvarenga, president of the Brazilian ferrous scrap association, Inesfa, takes a different view. He told Fastmarkets that Brazilian scrap appeals to South Asian buyers because it typically contains a lower copper content than material generated in North America and the EU.
Another issue which buyers of Brazilian scrap must take into account is shipment time, with material from Brazil taking up to 60-70 days to reach its destination in South Asia.
When the Indian market first resumed purchases, the first HMS cargoes heard sold originated from Brazil. But traders have told Fastmarkets the long shipping period, of up to 70 days compared with 40 day for European material, comes at a time when Indian market participants remain apprehensive of another lockdown due to the growing spread of the virus in the country which could mean factories have to close once more, culling demand.
Buyers taking such material who are not engaging in hedges may be left highly exposed to both swings in price and changes in currency which may harm their margins, US scrap trader Nathan Fruchter told Fastmarkets in an interview last month.
Brazil has the world’s second-largest number of Covid-19 cases, with total recorded infections hitting 867,624 as of June 16, according to the World Health Organization.
The Brazilian ministry of health reported on June 16 a total of 923,189 confirmed cases of Covid-19 in the country.
Regional restrictions to contain the Covid-19 spread have caused problems with collection and shipment of scrap from the country over recent months, especially in the São Paulo state. São Paulo is the most populous state and the financial hub in Brazil, and the most important state for ferrous scrap as well.
“Brazil is being quite hard hit by Covid-19,” one South Asian scrap trader told Fastmarkets in early June.
“It has been going through the same situation as India, [where] containers are stuck at the port and there is a shortage of laborers,” he said.
He added that there were rumors in the market of some suppliers backing out of existing contracts to sell scrap or asking for extensions to contract terms to help them fulfil them.
Government measures to deal with the pandemic differ across states. Quarantines and overall social distancing enforcement in the São Paulo state has been confusing, fueling transportation and logistics issues, Inesfa’s Alvarenga said.
But the problems are temporary and not nationwide, he added. Additionally, Alvarenga told Fastmarkets the situation has been normalizing over the past few weeks.
Brazilian scrap exporters have run into greater logistical problems abroad, the Inesfa president added, with a large volume of Brazilian scrap waiting to be cleared into India, for example.
He highlighted the pile-up of containers at Indian container ports has dogged the Indian market since the country’s Covid-19 lockdown began in March.
Bottlenecks in payments and difficulties clearing cargo meant that there were around 250,000 containers of metallic scrap stranded at Indian ports, inland container depots and container freight stations, according to industry estimates as of late April.
Market participants speaking to Fastmarkets agreed that Brazil’s position as a major exporter to South Asia is unlikely to become a long-term fixture in the scrap markets.
The export boom is likely to be temporary, Alvarenga said, because Brazilian companies have only had to resort to the external market amid weakening domestic demand.
“This is temporary and only due to lower prices [in Brazil],” a second South Asian trader said.
Brazilian exporters are likely to concentrate more squarely on markets in Mexico and South America in the future rather than on South Asia, he added.
“Besides, on the resumption of normalcy, I doubt Brazilian sellers would go beyond opportunistic sales to Vietnam,” he added.
“All the latest negotiations with steelmakers brought scrap prices down in Brazil, following weaker demand for rebar, for example, so we had to increase exports,” Alvarenga said.
“Of course there will always be exports, sometimes at higher and sometimes at lower volumes. But our main market is, and will always be, the domestic one,” the Inesfa president added. “It is much easier to sell domestically for us.”
At least for the remainder of 2020, Inesfa expects higher volumes of exports to persist. The country had already exported a record-high 710,049 tonnes of ferrous scrap in 2019; Alvarenga expected figures to be stable or even higher this year.