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Bulk may be too big for mills in emerging economies

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The ferrous-scrap-in-container segment of the scrap metals export market has run into some rough seas in recent months.

"It's getting harder and harder to get a container aboard a ship," one West Coast scrap executive said. Grain, fertilizer and other products that bring better revenue and cause less damage to the sidewalls of containers are getting priority spots on container ships these days.

Both the big export yards and the smaller yards are having the same problem, and many of the smaller shippers are particularly anxious to sell because they fear they might be left sitting on expensive scrap if prices start to decline.

The West Coast executive said his yard is booked through June on bulk cargoes of ferrous scrap to steelmakers in Asia, largely because worldwide demand for ferrous scrap is strong and freight rate increases for containers have added a little flexibility to the market. It is still more expensive on a per-tonne basis to use, say, a 30,000- to 35,000-tonne handy-sized vessel, which has a freight rate to an Asian port of $70 to $80 a tonne while container rates are about $50 a tonne. The equalization is on the destination end, where containers often have to be off-loaded onto trucks and railroad cars to be delivered to a mill that is far away from a port. That can add as much as $20 a tonne to delivery costs.

But one West Coast container scrap shipper said he and other smaller yards aren't without a few advantages over their larger rivals. One is that they can sell less scrap to some of the new steel mills in emerging economies like Vietnam and Bangladesh, especially now that worldwide ferrous scrap prices have topped $700 a tonne delivered. A small steel mill might need as much as $25 million to $30 million to buy a handy-sized cargo of shredded scrap, whereas 20 to 25 tonnes of the same metal in a container might cost less than $20,000.

The Westbound Transpacific Stabilization Agreement (WTSA) shipping consortium, made up of 10 major container shipping lines that ply sea routes between the United States and Asia, sets the rates for both 40-foot equivalent units (FEUs) and their small brothers, 20-foot equivalent unit (TEU) containers.

The recent rate increases for containers and drayage—the cost to haul a loaded container to the docks—has helped bring about a freight cost parity between the big export yards and their smaller rivals, some scrap industry members said. The major yards would prefer to load and ship by bulk cargo, but steel mills in emerging economies might lack the port facilities as well as the credit or financing to handle a bulk cargo of No. 1 heavy melt or shredded scrap.

Most of the major steel mills in Asia buy bulk shipments of raw materials like scrap, iron ore and coal. They are located close to deep water and have their own docks. Nevertheless, smaller U.S. scrapyards and the large export yards, on both the East and West Coasts have been using containers.

Ferrous scrap markets in China, South Korea and several other Pacific Rim nations were once a near-monopoly for the large exporters on the West Coast, but several years ago the smaller processors invaded that realm. They realized they could load 20 tons of, say, No.1 heavy melting steel scrap into an FEU and truck it to the dock. It was shipped overseas just as easily—and at a much lower cost and more profitably than the big bulk cargo shipments.

Initially, large export yards looked on the ferrous scrap-in-container shippers as a nuisance that would disappear once bulk cargo rates began to drop. They didn't. Instead, they actually began to increase faster than container rates, a development that helped propel some of the large shippers to rethink their disdain for containers and buy a few so-called tilters for loading scrap into containers.


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