Schmiedel: ‘Volatile landscape for ferrous scrap’

Global – For ferrous scrap and steel prices, the global landscape appears ‘volatile’ and the outlook ‘will depend on government policies rather than traditional supply and demand fundamentals’, states BIR ferrous division president William Schmiedel of Sims Group Global Trade Corporation. ‘This is not just true in China, but in most major steel-producing regions.’

China’s steelmaking capacity closures have been ‘more aggressive than anyone may have anticipated’ and have included the move to close all induction furnaces, said to represent an estimated 80m tons of the country’s annual steel production.

Despite continued, reasonably healthy demand for ferrous scrap, experts in the USA and Europe are anticipating further downward price corrections in February. With relatively good weather to date this winter, scrap flows in the USA have been very strong on higher scrap prices whereas the export market has been dampened by weakness in Turkey.

‘The differential between export and the US scrap price is now too large, thus positioning the US market for a price reset in February,’ it is observed, but with the caveat that ‘any correction now should be just that, and not a foretaste of markets to come’.

In Europe, prices into merchants’ yards have dropped quickly by as much as Euro 75 per tonne and yet demand for steel scrap ‘remains relatively buoyant’. And it is added: ‘Once any overhang of material has disappeared, we should see stability.’

The Japanese scrap market is not expected to drop below Yen 25 000 per tonne on a fob basis, not least because: domestic electric arc furnace production is thought likely to continue its improvement; and demand for the country’s scrap will remain steady owing to increased orders from, notably, Vietnam and Bangladesh.

Indeed, Bangladesh is said to be the ‘one bright spot’ on the Indian Sub-continent and has been paying up to US$ 300 per tonne on a cfr basis for cargoes that will be loaded in February and early March. India has not imported any bulk cargoes since late last year and ‘a tough few quarters’ are anticipated for secondary steelmakers that largely use scrap as their raw material.

The export market is unfavourable for Russian operators, partly because of ‘overpriced’ freight and ice duties at ports. Freight charges from Rostov to Turkish ports have increased ‘by almost 100%’ since November, it is noted by way of example.

There was a decline in steel scrap usage for crude steel production across most of the key countries and regions of the world in January-September last year, according to the latest World Steel Recycling in Figures update from the BIR ferrous division’s statistics advisor Rolf Willeke.

These included the EU-28 (-5.3% year on year to 66.021 million tonnes), the USA (-4.4% to 35 million tonnes) and Japan (-1.9% to 24.59 million tonnes). ‘In all these individual cases, the percentage reduction in scrap usage was greater than the respective decline in crude steel production,’ he observes.

Conversely over the first three quarters of last year, increases in steel scrap usage were recorded in China (+3.5% to 64.7 million tonnes) and Turkey (+5.1% to 19.72 million tonnes), with these gains outstripping the respective percentage increases in the two countries’ crude steel production.

Figures for the first nine months of 2016 also show that leading steel scrap importer Turkey upped its overseas purchases by 7.2% year on year to 12.919 million tonnes. An import increase was also recorded by India (+4.9% to 4.885 million tonnes) to reinforce its position as the world’s second-largest steel scrap importer.

In contrast, cuts in scrap imports were made by, among others, South Korea (-3.5% to 4.354 million tonnes), Taiwan (-12.6% to 2.472 million tonnes), the EU-28 (-5.5% to 2.096 million tonnes) and China (-14.4% to 1.53 million tonnes).

Also in January-September 2016, the EU-28 remained the world’s leading steel scrap exporter with a year-on-year increase in its overseas shipments of 23.8% to 12.676 million tonnes while Japan’s overseas shipments jumped 13.3% to 6.705 million tonnes.

There was a further decline in US exports of 3.4% to 9.648 million tonnes as well as reduced volumes leaving Russia (-3.8% to 4.179 million tonnes), Canada (-2.5% to 2.624 million tonnes), Australia (-19.1% to 1.135 million tonnes) and South Africa (-55% to 452 000 tonnes).