Asian Scrap Markets - A Temporary Bottom or Dead Cat Bounce?

Last night:

– Tokyo Steel dropped another 500 Yen for local Japan H2 grade scrap.
– With recent emphasis on China banks tightening credit for Steel, Cement, Construction industry, iron ore hit a low at $119.50/dmt last night.
– Korea dropped local prices this week.

On somewhat positive notes:

– Taiwan raised local prices 100NT ($3.50/mt) and some steel products were raised by same amount. This may be a short term bounce on the over corrections previously (down $40/mt).
– More interest in bulk cargoes.  Several sold in the $362-$364/mt CFR Korea/Taiwan range HMS basis.
– Containerized HMS cargoes trading several US$ higher marginally.  Currently in the $335-$338/mt CFR range Korea/Taiwan.

There are additional risks and talks concerning Taiwan EFCA with China (EFCA is a free trade agreement).  This will allow a basket of various steel products to be imported into Taiwan duty free status.  It is anticipated to affect the steel industry in Taiwan 2nd half of 2014.   Short term, steel stockists in Taiwan will be reluctant to purchase any inventory for stock for any longer periods of time.   There will be some impact but my personal opinion is the affect will not be as large as anticipated.   It is important to note there is duty free trade on steel with Korea already.

Southeast Asia containerized and bulk is very subdued and at current, with freight considerations, Far East Asia still seems to be the higher priced market for scrap.

In Thailand, a large mill will restart in April after a new investor into GSteel. GSteel produces HR coils.

Exchange rates temporarily have stabilized, so the markets will look for iron ore prices for direction and the health/status of the China steel industry.   There are many discussions currently concerning the bubble popping in China with the recent credit tightening policies.

My personal opinion is we have a dead cat bounce in Asia but the market is still weak and there doesn’t seem to be much impetus for the raw materials markets to make any dramatic upside moves.