Written by: Damon Sun, Daido International
Asian markets definitively heated up on the back of the increased iron ore prices to China. Iron ore (63.5%) is trading around $160/dmt basis, which 3 months ago it was trading near $110-$120/dmt basis. The price increase is a bit unusual in terms there doesn’t seem to be an increase in demand nor a major increase in the demand on finished steel. It is based more on optimism on the new government in China and announcements of new building of railroad and highways to no where.
That said, 3 of the 4 major steel/scrap markets seem to be quite active. (South America, USA, Asia) with Europe and in particularly Turkey being subdued. Turkey was hit recently with a 5% import tax into U.A.E., and subsequently, Turkish material will concentrate on USA markets and also S.E. Asian markets.
Japan’s new government has a policy of a weakened yen. There has been 12 percent depreciation in the yen. Although Japan scrap may seem cheaper, the counter is the reality. Japanese Mills will be active in exporting finished goods and will keep local scrap at home. I believe Japan 2012 exported probably near 8 million metric tons and I believe in 2013 it will be lower at around 5-6 million metric ton levels.
Of particular note is what actions the Chinese mills will do before Lunar New Year or after Lunar New Year in early February. At moment, scrap steel will be cheaper to make finished goods than iron ore at $160/dmt levels.
Turkey will hover around $408-$410/metric ton cfr levels for HMS, Japanese Scrap has risen dramatically from Tokyo Steel announcements, USA West Coast prices have gone up approximately $65/metric ton level from the absolute lows. Traders are holding scrap sales, but will likely have to release by end January (so there will be sufficient supply by end January). Far East containerized are at $395/metric ton CFR levels whereas, FAS levels about $370-$375/metric ton FAS. Bulk cargoes to Far East are in the range of $425-$435/cfr hms basis.
I see the markets still going up until end January, prior to the Lunar Holidays. After Lunar Holidays, there may be a bit more rational decision making than the flurry that has taken place in the last 2 weeks.
John PackardRead more from John Packard
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