FOCUS: Vietnam’s scrap prices set to be next benchmark for Asia

Vietnam scrap import prices are set to be the next Asian scrap benchmark with import volumes continuing to rise in 2018 on a year-on-year basis.

Demand for scrap is expected to remain firm due to the rapid growth of steelmaking capacity in the country supported by its fast-growing economy. Vietnam’s gross domestic product is expected to grow 6.7% this year, largely stable in comparison with last year’s 6.81%, according to the Vietnam Steel Association (VSA).

Vietnam’s steel demand has almost doubled since 2013 – the country consumed nearly 22 million tonnes of steel in 2017 (10.49 million tonnes of long steel and 11.41 million tonnes of flat steel) compared with 11.90 million tonnes in 2013, according to VSA data. The latter consisted of about 5.5 million tonnes of flat and long steel each.

Steel production in the country too has increased, the South East Asia Iron & Steel Institute said. Its crude steel output rose 46.9% to 11.47 million tonnes in 2017, from 7.81 million tonnes in 2016.

Its finished steel production increased 30.6% to 11.30 million tonnes in 2017, from 8.66 million tonnes in 2016.

Its increasing self-sufficiency in steel can also be seen in dropping import volumes. Imports fell 13.9% to 15.02 million last year from 17.45 million tonnes in 2016, while exports grew 24% from 2016’s 3.78 million tonnes to 2017’s 4.69 million tonnes.

Accordingly, ferrous scrap import volumes have shot up to feed Vietnam’s growing appetite for steel products, according to statistics from the country’s customs agency.

Vietnam imported 2.09 million tonnes of ferrous scrap in the first five months of 2018, a 21.5% year-on-year increase from the 1.72 million tonnes it took in over the same period last year. Over the whole of 2017, the country imported 4.74 million tonnes of the steelmaking raw material, up 21.5% from 2016’s 3.9 million tonnes.

Among the key importers in the country are Viet Nam Steel Corp, Pomina Steel, Tung Ho Steel Vietnam, Vina Kyoei Steel, Posco Vietnam and the steel division of the Hoa Phat Group, all of which import ferrous scrap to feed their meltshops.

Vietnam’s key supplier of ferrous scrap is Japan, which typically sends more than 90,000 tonnes per month to major Vietnamese ports, especially those in the south, in the form of bulk cargoes.

Other sources include Australia, Europe, Hong Kong, Chile and the United States, but scrap buyers in Vietnam have traditionally imported more Japanese material than any other.

Asian benchmark
There is sufficient liquidity for an active fixed-price spot import market. Key market participants in the regional scrap and long steel markets actively look at cfr Vietnam scrap prices to determine the latest price movements in the various segments of the steel market.

Metal Bulletin on Friday August 3 launched a new cfr Vietnam ferrous scrap import price assessment on the back of interest from market participants in search of a benchmark to price physical contracts for bulk scrap cargoes imported into Asia.

“A Vietnam scrap price is workable as a basis for a physical contract not just for Vietnam itself, but also for neighboring countries in Asia such as Indonesia whose prices track the Vietnam scrap price trend,” a scrap trader in Southeast Asia said.

The weekly price assessment seeks to reflect transaction levels in the Vietnamese scrap import market and will be published every Friday. It will mainly assess Japan-origin bulk heavy melting scrap (HMS) cargoes but will also take into account other products of similar quality.

Its importance is growing quickly and is expected to complement the benchmark Metal Bulletin cfr Taiwan import price assessment, which tracks United States-origin containerized scrap sold into the East Asian island.

While there has been much discussion on how Vietnam’s increasingly stringent customs inspections could result in weaker spot demand and affect liquidity, this has been seen only in the container markets. Ferrous scrap buyers are increasingly purchasing more bulk cargoes in an attempt to discharge their cargoes quicker, thus leading to an increase in spot liquidity.

“The container market is almost dead now. Steel mills are all looking for Asia or US-origin bulk scrap cargoes to fulfill their raw materials requirements,” a trader based in Vietnam said.

While there are other ferrous scrap grades such as plate & structural or shredded being imported by end-users, HMS prices remain the key price indicator, with other grades tracking them through different levels of dollar premiums. The higher-quality scrap grades are also imported selectively by Vietnamese steel mills depending on their needs.

Metal Bulletin continues to monitor the fluid Asia scrap markets and trade flows, especially amid increasingly stringent inspections by the customs authorities in Vietnam on ferrous scrap to reduce the inflow of environmentally harmful waste materials.

This has caused buyers to seek out higher-quality scrap, which may alter trade flows further in the medium term and create more opportunities for ferrous scrap price assessments.