The Asian ferrous scrap complex is poised for further headwinds going into 2022 as key regions such as Vietnam and South Korea remain plagued by rising Covid-19 infections, which have severely disrupted the regional supply chain. However, the Japanese scrap market is expected to main resilient on firm domestic demand, market participants said.
Vietnam
The outlook for Vietnam's scrap market is highly dependent on developments in the Chinese steel sector, and market participants said that rising Covid-19 infections in Vietnam are likely to lead to further bearishness in 2022.
Market participants expect Vietnam's steel market to stay under pressure at least until the lunar new year holiday that ends in early February 2022. That said, if the spread of Covid-19 were to be sufficiently suppressed in 2022, Vietnamese domestic steel demand would recover on planned new government infrastructure projects including expressways and seaports.
And prolonged weakness in steel demand from overseas will also weigh on the Vietnamese scrap market. Export business relative to overall capacity has become increasingly important to steelmakers, leaving them vulnerable to oversupply when export demand falls as it did in 2021.
In the second half of 2021, Vietnamese scrap imports shrank on tepid steel sales caused by domestic lockdown measures and a fall in the Chinese steel market. Vietnam's domestic rebar price fell by around $30/t from mid-November to early-December and electric arc furnace mills ran at half capacity to keep steel prices profitable.
Vietnamese steelmakers exported 3.33mn t of semi-finished steel products in the first 10 months of 2021, of which 67.3pc flowed to China. "We will have a tough time if China stops buying billet from us," a Vietnamese mill said.
South Korea
The outlook for the South Korean ferrous scrap market is fraught with challenges, and market participants said the outlook is most likely to be bearish at least for the first half of the year.
While the country has mounted a firm economic recovery amid robust exports, Covid-19 infection rates have surged to record highs in recent weeks, reaching more than 7,000 daily infections in early December. Market participants warned that the Omicron variant could pose headwinds for South Korean steel and scrap prices if it triggers another global wave of lockdown measures.
Market participants are also keenly observing the development of the US-South Korea talks on removing the steel tariffs that were imposed during the administration of former president Donald Trump. In 2018, the US waived the tariffs on South Korean products, but it was in return for a yearly import quota of 2.63mn t of steel, or 70pc of Seoul's average steel product export volume over the past three years, South Korea's government-funded Yonhap News Agency reported.
Japan
Japan's ferrous scrap market is expected to stay resilient in 2022 amid firm demand from domestic steelmakers, according to most market participants surveyed by Argus.
Firm domestic demand acted as a strong support for Japanese ferrous scrap prices throughout the year and is expected to continue into 2022 as steelmakers accelerate their efforts to decarbonise.
Production of Japanese EAF mills in January-October 2021 increased by 16.25pc on the year to 20.2mn t, accounting for 25pc of total crude steel production. Japanese scrap suppliers were less dependent on export business in 2021 because of tight supply and sustained domestic demand, which caused July-October ferrous scrap exports to drop sharply by 30.7pc on the year.
Some concern has appeared that the Japanese domestic market could soften at the beginning of 2022 if the Asian steel market stays weak.
Steel export orders have been slashed from January onwards for both Japanese mills and southeast Asian steelmakers that import Japanese scrap.
"Mills still have enough orders for December, but I do not think mills will still pay higher prices for scrap than the overseas market if their steel exports decrease. Demand from China is a key factor," a Japanese trader said.
