Suppliers seek stainless steel scrap sales to Indonesia

More stainless steel scrap suppliers are targeting sales into Indonesia, where consumption could rise as the Tsingshan-owned mill at Sulawesi ramps up production.

Chinese steelmaker Tsingshan's 3mn t/yr mill began operating in 2017 and the firm hopes to boost output to 2.7mn t this year.

In addition, Chinese producer Delong Holdings' Indonesian joint venture Dexin Steel was due to become operational by the end of last month.

Indonesia's rising stainless steel scrap imports mark a major shift in Chinese feedstock procurement practises, and suppliers globally are keen to tap into sales opportunities there.

"Everybody is trying to have a [business] relationship with Tsingshan," a supplier in Thailand said.

Indonesian customs data show that 20,329t of stainless steel scrap under tariff code 720421 was imported in January-May, up by 73.7pc on the year.

Japan was the largest supplier, shipping 7,266t, followed by the UK, with 5,517t. Thailand provided 3,188t and Taiwan 2,898t.

Like other Chinese mills, Tsingshan Indonesia mainly relies on nickel pig iron (NPI) as feedstock. The group also operates NPI and chrome mining assets, enabling it to reduce production costs.

In contrast, mills in Europe and the US rely mainly on 304 series stainless steel scrap as their main feedstock and add in refined nickel and chrome to meet the required purity of finished products. The 304 grade contains 8pc nickel, 18pc chrome and 72pc iron.

But the November-April rainy season disrupted NPI mining in southern Sulawesi, prompting Tsingshan to source alternative feedstock.

Sales of 304 solids were heard at $1,300/t cif Indonesia in March, at parity with prices into India.

One major barrier encountered by suppliers is that the port at Sulawesi can only receive bulk shipments. Most scrap suppliers prefer to ship in containers because it is difficult to amass enough material to fill a bulk vessel large enough to ensure acceptable freight costs.

"I have sent someone to check, there is no chance of supplying sea containers there. For us, to supply bulk scrap is quite difficult," a European supplier said.

A second supplier agreed: "Sure, there have been trial shipments, we try to ship stainless steel scrap to Sulawesi, but they do not have the facilities to accept containers."

Market opinion divides

Indonesia's import data is at odds with the information that Tsingshan does not use scrap as feedstock. This has caused confusion and divided opinion in the market.

A supplier close to the matter said Tsingshan's stainless steel scrap imports "is not a rumour" and that the mill has started production using 304 scrap remelt.

"I don't find it plausible for them to switch to stainless steel scrap in a big way. Indonesia does not have the knowledge and furnaces to use stainless steel scrap," one European supplier said.

Many market participants also said Tsingshan is unlikely to use stainless steel scrap because NPI prices are much lower.

The Argus assessment for NPI ex-works China with minimum 10pc nickel averaged 978.15 Yuan/mtu ($144.03/mtu) between 2 January and 15 July.

Finland-based Outokumpu, Europe's largest stainless steel producer, said NPI's discount to the London Metal Exchange nickel price was around 45pc in [January]( https://metals.argusmedia.com/newsandanalysis/article/1858808). The 304 stainless steel scrap discount to the LME nickel contract in Europe has also been growing since last year and was at 25-32pc over the past month, according to Argus assessments.

The price for 304 stainless steel scrap solids (18-8) was assessed by Argus at $0.51-0.52/lb cif Japan, South Korea and Taiwan on 11 July.

Some scrap suppliers claimed that with iron ore prices rising, 304 stainless steel scrap is a lower-cost alternative to NPI.

Seaborne iron ore prices are at multi-year highs after the fatal Vale dam collapse in Brazil in late January, with additional price gains spurred by a slowdown in Australian shipments. The Argus ICX price for 62pc Fe iron ore fines was assessed at $119.70/dmt cfr Qingdao today, up by 65.3pc from 2 January.

"The scrap is always cheaper than raw chrome and iron ore," a Japanese supplier said.

"[Tsingshan] is using stainless steel scrap because they can get the chrome and iron 80pc cheaper than the raw material," the first supplier in Thailand said.

Tsingshan was unavailable for comment.

Looking east

The 304 stainless steel scrap price in Europe is under pressure as mills seek bigger discounts to cut costs and compete with China. European blenders are increasingly looking east.

"We need some competition against European steel mills," a European stainless scrap supplier said.

"The mills are pushing everybody to reduce price," another stainless steel blender said. "We are pushing back — if we have to reduce prices further, we will look into exporting to Asia."

The lack of container import facilities at Sulawesi remains problematic for suppliers that wish to sell stainless steel scrap there as bulk shipment requires a minimum cargo volume of 1,000-1,500t.

Many suppliers in Asia are small to medium-sized firms that are unable to gather that much scrap for a single shipment. Only major stainless steel blenders have the means to deliver bulk cargoes.

"Only someone with scale like us can get the ticket," one major stainless steel blender said.

But many market participants believe that if the need arises for regular stainless steel scrap shipment in Indonesia, the Chinese owner will build the necessary infrastructure to receive containers at the port.

"If they need scrap monthly, I expect them to find a way to build a port to accept containers so they can deal with smaller dealers," one Thailand-based supplier said.

"The Chinese are so fast in setting up, I would not be surprised if they set up the scrap facilities in six months," another supplier said.