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Rising freight costs add to pressure on Colombian ferrous scrap merchants

Sao Paulo (Platts)--30 Nov 2017 425 pm EST/2125 GMT


Pressure has risen lately on Colombian ferrous scrap merchants due to logistics costs, which were already high, increasing yet further due to firmer freight rates, players said Thursday.

According to sources, domestic ferrous scrap is currently sold at around $130/mt, around $20/mt lower than in the third quarter of 2017. "Prices are only that low compared with international markets because logistical and transportation costs in Colombia are extremely high," one scrap dealer said, adding that such costs varied considerably.

Domestic scrap collectors had to cut their selling prices as the main buyers -- steelmakers -- were putting on pressure them for decreases as freight costs have been growing lately, sources said.

Higher oil prices, labor costs and tricky routes are the main reason for the transportation issues in Colombia, they say.

Colombia is currently investing $16 billion in the Fourth Generation (4G) infrastructure project, expected to begin in 2016 and last eight years. Its top initiatives include building and improving over 8,000 km of roads around Colombia, in addition to construction at airports, ports and railways.

Export prices are higher than domestic levels, but still below international levels. "I'm exporting scrap at $150/mt, just the price for the material," one trader said. Volumes were not disclosed.

In comparison, offers for premium heavy melting scrap I/II (80:20) shipments from US to Turkey moved above $325/mt CFR and beyond, reaching as high as $335/mt CFR on an 80:20 basis.

Domestic steelmakers are the main consumers of Colombia's ferrous scrap, accounting for more than 90% of the entire supply chain. However, sources said there is still not enough scrap for the market at around 1 million mt/year.

"Mills have the capacity to produce 1.8 million mt/year of steel, but operate at around 70% of that due to the lack of ferrous scrap in the country," one market specialist said. "With more scrap available, steelmakers would increase their production."

Colombia collects most of its ferrous scrap domestically, and all its steel producers rely on the material to operate. Paz del Rio is the only one that also uses iron ore in its blast furnace, but it also has an electric arc furnace.

Logistics costs are a significant issue for the market, depending on the part of the country where the scrap is collected. The situation does not affect Colombia's main cities, but it does affect the areas distant from the main production hubs.

Due to geographical issues, with most of the country's landscape mountainous, Colombia lacks enough of the high quality roads needed for logistics purposes, sources said, which makes freight rates much higher than the value of the material being transported.

Most of Colombia's steel mills -- Paz del Rio, Gerdau Diaco, Sidenal and Acasa -- are located in the states of Boyaca, Cundinamarca and Caldas, in the center of the country, while others -- Gerdau Diaco, Acesco and Tenaris TuboCaribe -- are in the north of Colombia, in the Bolivar and Atlantico states. Sidoc is located in the west, in Valle del Cauca state.

Colombia has six long steel producers: Votorantim's Paz del Rio unit, Gerdau Diaco, Acasa, Sidoc, Sidenal and tubes producer Tenaris TuboCaribe.

Acesco has a flats rolling mill in the country.

--Guilherme Baida, guilherme.baida@spglobal.com

--Edited by Keiron Greenhalgh, keiron.greenhalgh@spglobal.com




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