Financing delays halt Pakistan scrap imports, threaten production
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US dollar shortage-induced delays in opening letters of credit (LCs) have brought imported scrap trade in Pakistan to a halt. The ongoing situation raises questions over the survival of recently signed trade deals, with sellers considering diverting scrap cargoes to India or Bangladesh if the LC delays prevail in the coming week, sources tell Kallanish.
On the other hand, Pakistani banks are pledging to settle LCs from this week onwards. Nevertheless, despite the banks’ assurance, the majority of importers are in a panic and refrained from booking any cargoes last week.
A few bookings were heard concluding earlier last week at $460-463/tonne cfr Port Qasim, but buyers are unsure whether they will be able to open the required LCs. A booking for 1,000 tonnes of UK- and EU-origin shredded scrap was heard concluding at $462/t cfr Port Qasim on Tuesday, while a booking of 3,000t of UK- and EU-origin shredded was concluded at $461/t cfr.
"Cargoes for January shipment are under loading, and still, we are not able to open LCs," says a source. "Because of this situation, we will not be able to receive the documentation, and, hence, sellers will step back from the deals."
"If the situation continues to remain the same until mid-next week, then the cargoes will be diverted to other destinations," the source added on Friday.
Another source opines: "Cargoes that are loaded onto the sea and whose LCs have been opened will arrive in Pakistan, and those whose LCs have not been opened yet will surely be diverted to other destinations."
On Friday, no offers were heard in Pakistan. Buyers are heard continuously discussing with banks and waiting for positive updates.
This issue has impacted the local market as well. "There is a severe shortage of local scrap amid delays in LCs ... and prices have soared dramatically to PKR 160,000/t ($700) ex-Lahore," a market participant informs. "This shortage of raw materials will force the steel mills to curtail their production for the time being."
Pakistani importers have booked numerous containerised cargoes in recent weeks, but the LC delays have blocked the deals. "Sellers are pressuring us to open the LCs, but we are helpless," informs a trader.
This situation is also likely to impact the Indian scrap market. "If sellers divert the Pakistani cargo to India, it will definitely pressurise the new bookings and offers," says an Indian source. "However, this will benefit those Indian importers who have postponed their purchases until the end of January."
The world's first donor conference in Geneva has pledged to loan around $10 billion for flood relief to Pakistan. The government feels this, coupled with other loans, will provide some relief to the economy.
Meanwhile, offers for ship scrap from containers were noted at $530/light displacement tonne (ldt). Scrap from dry bulkers and tankers is hovering at $510/ldt and $520/ldt, respectively.
Sayed Aameer India