Chinese ferrous scrap's recent venture into Vietnam may take some time to become a firmly established trade route while teething problems with quality and logistics are being worked out.
Market participants in China and Vietnam said the obstacle was a mismatch between the quality of scrap that China was offering and what Vietnam wanted to buy.
"Vietnam is only interested in [heavy] material, 80:20, 3 millimeters and above thick," a trader in Ho Chi Minh City said. Chinese offers have, however, been mainly for shredded light scrap, as a market for heavy material already existed domestically.
As of Friday, two selling indications for Chinese shredded light scrap were made at $270/mt and $273/mt CFR Vietnam, in which buyers have shown no interest.
The former price, for 5,000 mt of end-June to early July material shipped in bulk, has risen $10 from two weeks ago, a scrap buyer in Ho Chi Minh City said.
This was likely a movement in line with higher scrap prices in China.
Due to the Vietnamese market's lack of familiarity with Chinese scrap, a number of buyers there have asked to try out small shipments of a few hundred tons, a Chinese trading source said.
However such volumes would have to be shipped in containers, and would therefore cost $10/mt more, rendering them uncompetitive against those from the US and Japan.
In addition, scrap sold in bundles is expressly prohibited by Vietnam customs regulations, according to the trader in Ho Chi Minh City.
The Chinese trader said the customs authority was concerned about the inability to thoroughly inspect scrap imported in this way. "It could contain radioactive material or those harmful to the environment," he said.
China's recent emergence as a scrap exporter arises from increased domestic supply, following a nationwide crackdown since December on induction furnaces, which use scrap as raw material.
China exported 15,360 mt of ferrous scrap in April, a massive leap from 653 mt in March and zero in February, according to customs data for latest available period.
The figure in April alone exceeded the 1,045 mt it exported in the whole of 2016.
Hong Kong was the top destination, accounting for 6,738 mt, or 44%, while Vietnam bought 3,604 mt, or 24%, according to Chinese information provider JLC.
Indonesia, India and Taiwan were the next biggest buyers at 2,425 mt (16%), 1,506 mt (10%) and 1,067 mt (7%).
By region, the southern provinces of Guangdong and Fujian accounted for 14,000 mt and 1,048 mt of the scrap exported.
While a number of market participants cited a deal for 10,000 mt of Chinese scrap sold to a Vietnamese mill earlier this week, a number of others doubted this was true because Chinese offers have become less competitive than two weeks ago.
This was confirmed by a northeastern Chinese trader, who said Friday that she had not concluded new deals this week as ferrous scrap prices domestically have risen. "We're just performing on contracts to Southeast Asia signed in April and May now," she said.
Meanwhile, the 40% export duty that China levies on scrap will continue to be a barrier to exports, an official at the China Association of Metal Scrap Utilization told Platts earlier this week.
