[ferro-alloys.com]Asian ferrous scrap prices have rebounded so strongly from coronavirus lockdown-induced lows in March that melt shop margins have turned negative across the region, S&P Global Platts data showed June 4.

Tighter scrap generation, oversold April and May export cargoes and a recent revival in domestic Japanese demand have created a perfect storm for scrap prices. Between the start of April and June 3, Japanese scrap export prices surged $41/mt, boosting the cost for melt shops to produce billet by $45/mt, based on a typical 1:1 scrap usage ratio.

Vietnam, the largest steel producer in Southeast Asia that usually relies heavily on scrap imports from Japan, has shied away due to the price surge and turned instead to using domestic billet as re-rolling feed.

As nations across Asia ease restrictions aimed at containing the coronavirus, any hope of a recovery in steel demand has been dashed by seasonal factors such as monsoons across much of the region.

"We don't expect much improvement in construction demand while it's the rainy season here," a steelmaker in Vietnam said.

The lag in recovery in demand has capped the possibility of melting margins improving and led to crude steel production cuts as it is "no longer profitable," one source said.

"Utilization rates are dismal, some mills in Vietnam are only on half production, some in South Korea have cut melting days, and some in Thailand and Indonesia are just re-rolling billet entirely," a regional trader said.

The slow uptick in semi-finished billet prices has also acted as a dampener for melt margins. Southeast Asian billet prices rose $10/mt in May to end the month at $400/mt CFR, well outpaced by the surge in the scrap market.

The Japanese seaborne scrap price for delivery to Vietnam stood at $260/mt CFR for H2 scrap grade June 3, equating to a billet production cost of around $420/mt, taking into account trucking and conversion costs.

"Without [an improvement in] billet or bar prices ... current scrap prices will only see us losing money," another Vietnamese steelmaker said. "What other choice do we have besides looking toward blast furnaces for their billet now?"

Supply tightness in the West, which was also seeing an increase in interest, may provide further support to prices.

LESS IMPACT IN JAPAN

While the jump in scrap prices should also hurt melt shop margins in Japan, they are cushioned by direct access to supply; domestic scrap prices, while trending higher, remain at a steep discount to exports.

Light scrap bids for Kanto region mills were heard in the range of $221-$230/mt for deliveries to the plant, translating to a cost of $371-$380/mt to produce billet, which is on average $44.50/mt lower than production margins in Vietnam.

In addition, domestic rebar prices in Japan have been unchanged since March, offering a higher-than usual premium to that in Vietnam. Listed Japanese prices at $505/mt for base sized bars remain at a $58/mt premium to those in Vietnam, providing additional breathing space for Japanese mills.

As such, seaborne scrap dependent countries are currently seeing greater cost pressures.

(S&P Global Platts)

• [Editor:王可]