Fe Scrap Watch#33 50-days demurrage at berth for Korean major buyer means suspension of delivery
From late 2008 to 2009, more than 30 ships had been anchored in the sea near the berths for Inchon plant of Hyundai Steel, the Korean major imported ferrous scrap buyer. It was an extraordinary view. But six years later, another extraordinary situation has been seen there. That means allocation of ships has been delayed.
Let’s review what Hyundai Steel had been done in the past.
As product prices become nominal after falling sharply from JPY120,000, it was in fact impossible for manufacturers to consume the raw materials purchased in existing contracts while struggling to adjust production and inventory.
Hyundai Steel unilaterally announced the cancellation of the existing contracts by fax to the shippers who had not opened the L/C. The company cancelled the contracts so easily as if they had been willing to employ legal means. It was obvious to run into financial trouble if a manufacturing company continued to purchase raw materials amid the sales drops. But, the company carried out the iron-hearted procedures even for the shippers which supplied the materials to Hyundai Steel on a preferential basis.
At that time, the contracted price was less than JPY70,000/t for H2. Since then, it dropped sharply to JPY12,500 in Tokyo Steel Okayama plant sea price. The market got into a panic. After it calmed down, Hyundai Steel resumed purchasing raw materials preferentially from the suppliers with whom the company cancelled the contracts in the Great Recession after 2008. It was a superficial kindliness for the suppliers. But, they had no other choice but to accept Hyundai’s offers given that they needed to maintain relations with the largest buyer in Asia, Hyundai Steel.
History repeats itself.
Six years later since then.
Current ferrous scrap market has an extraordinary atmosphere completely different from that after the Great Recession in 2008, where an extremely inflated balloon had burst. But, in the current Asian economic crisis, it seems that an inflated balloon is getting deflated slowly.
The majority of the most recent contracts for Hyundai are based on FOB contracts which are Hyundai’s option to allocate ships. And, the company has postponed the allocation of ships with FOB contracts on a unilateral basis.
In such cases, it is said that Hyundai Steel asks the suppliers to wait for the allocation of ship as it is supposed to wait for up to more than 50 days because of heavy demurrage.
While prices are on downturn, suppliers can’t cancel existing contracts and just have to wait for the allocation of ship by Hyundai. As they can’t stop collecting materials and need operating money, they have got into a situation where they have no other choice but to ship to Taiwan or Vietnam where there is no demurrage.
The other day, Hyundai Steel bid JPY13,700/t for H2 FOB after gathering offers from Japanese shippers. The highest price is said to be JPY14,000/t FOB with a premium of JPY 300/t for more than 4,000 tons. But, as the shipment will be between in the mid-January to mid-February next year for this contract, there is no impact on the current delayed allocation of ships.
Not all shippers are doing anything. Some of shippers started to change the contracts to on CFR basis after this contract.
But, if the demurrage is terrible, some ships hesitate to go to the berth. Then, there would be a risk that the freight might significantly increase. We would have to take it as a trading risk….
The ferrous scrap negotiation for Hyundai Steel has been virtually sustained.
Recently, the major Korean steel manufacturer, Dongkuk Steel purchased Russian scrap and Russian pig iron at $154 and $185, respectively. We are currently in an era of abundant iron source.
Japanese ferrous scraps destination has been absolutely and steadily decreasing.
（EDITED By O.Sasaki）