Special Feature: Ferrous Scrap critical to ASEAN Industry

Posted on 19 May 2021

During Jan – Nov 2020, ASEAN-7 countries exported about 1.20 million MT of ferrous scrap, which saw a decrease of 46.8% from 1.75 million MT of the same period in 2019. The top 3 exporting countries were Singapore, Malaysia and Thailand. 31.4% of the export has gone to India and 20.3 % to Indonesia. Other smaller countries in the APAC and ASEAN too have sourced the material for its steelmaking facilities due to their limited domestic scrap availability. The declined in export was caused by a slower activity in the recycling of ferrous scrap as well as lower demand for the raw material from the smaller steelmaking mills during the pandemic lockdown. 

Based on our estimates (2020 SEAISI Steel Statistical Yearbook), local generation of ferrous scrap in the ASEAN-7 region is enough only to feed about half to its local requirements. All of the countries do not have enough supply of local ferrous scrap to meet the demand and therefore need to source the critical materials from outside of the region. In 2020 (Jan – Nov), the ASEAN-7 steel industry imported 6.04 million MT of ferrous steel, lower compare to the import in 2019 (Jan – Nov) which was about 8.65 million MT, mostly from Japan (40.1%), USA (18.1%) and Australia (9.2%). 

Table A shows that ferrous scrap coming from 2 top suppliers USA and Australia have reduced to about half in 2020 as compared to 2019, but shipment from Japan continued sustaining at the same volume as previous year at about 2.45 million MT.  The lower import from USA and Australia was due to the shipping tightness and high freight rates. Note that the Japanese ferrous scrap is primarily preferred for its quality and the country geographical proximity. 

Vietnam has been the biggest consumer of Japanese scrap among the ASEAN-7 countries, importing 39.5% of the total scrap imports. Vietnam’s effective response to the pandemic and early easing of restriction in construction activities has driven the country’s demand for steel. Beside its current steelmaking capacities, new investments planned are starting to take place, and that demands for a steady supply of ferrous scrap. In addition, Vietnam production of steel picked up because it took the opportunities to sell more semifinished steel to China in the previous 2 years. Export of semifinished to China increased 4 times from 0.21 million MT (2019 Jan – Nov) to 0.81 million MT (2020 Jan – Nov) (SEAISI March Newsletter). 

The quantity of ferrous scrap that moved into Malaysia is particularly noteworthy. Malaysia maintained the import volume at around 1.20 – 1.30 million MT for 2019 and 2020 for its ironmaking and steelmaking operations despite its economy being in the recovery stage.  This represents a stable demand for ferrous scrap for these 2 years of production particularly in semifinished and long products to meet the drastic spike of export to China as a substitute to the lower local demand.

Steel mills in the region will go back into full swing in their operations in the coming months to meet past established and new markets requirements.  And with more planned capacities (SEAISI Feb Newsletter) to kick off after a long delay, sourcing the raw material ferrous scrap is expected to be very competitive. An external factor that drives this trend is China’s policy for cleaner environment, which encourages the setting up of more electric arc furnaces (EAF) and fewer blast furnaces / basic oxygen furnaces (BF/BOF) investments and this which will increase the demand for ferrous scrap. To support the above new initiative, China has also recently lifted the restriction of importing ferrous scrap into their country. 

ASEAN-7 steelmakers maintained their utilisation rates last year and are expected to do the same for this year as economic activities are returning to the level seen before the pandemic. With ferrous scrap being such an important raw material for the production of iron and steel, there are concerns that demand may outstrip supply. The key question is when. Malaysia has already imposed a 15% export duty of ferrous scrap last month over the concerns about the supply for domestic steel producers during the pandemic when scrap recycling activities are slow.  The conversion of blast furnaces to EAF operations in China, is already trending but it will not happen overnight. However, scrap can be used in BF/BOF and China’s lifting of restrictions on ferrous scrap imports could see China’s steel mills absorbing large quantities of scrap from ASEAN. 

So, is the scrap shortage looming on the horizon?

Tabel A: ASEAN-7 Import and Export of Ferrous Scrap

Table B: 2019, 2020 ASEAN-7 Ferrous Scrap Export (Jan – Nov)

Table C: 2019, 2020 ASEAN-7 Ferrous Scrap Import (Jan – Nov)

Source : SEAISI