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Logistics costs hamper recovering markets

With shipping rates at an 11-year high rate, US and EU scrap exporters struggle to match competitor prices.

Prices may remain buoyant and the economies around the world are moving into higher gears but some obstacles remain on the road ahead for scrap traders everywhere. In the US, for example, steel prices in the United States have reached record highs this year while recyclers of iron and steel continue to face challenges including supply chain disruptions, elevated transportation costs and labour shortages.

China’s situation is less than full-throttle at the moment with the China Steel Logistics Professionals Committee (CSLPC) reporting that China’s steel sector purchasing managers’ index (PMI) fell by 1.3 points on the month to 41.8 in August on slower production resulting from output reduction policies and weaker off-season steel demand, worsened by Covid-19 lockdowns. More broadly, China’s services PMI slumped to 47.5 in August after a reading of 53.3 in July.

US STEEL

The latest US raw steel production report from the American Iron and Steel Institute (AISI) show capability utilisation in the domestic production sector at the end of August was 84.9%. Current production levels represent a 26.9% increase on the same period the year before. The US economy is recovering and the manufacturing PMI in August was a healthy 59.9. Growth is also indicated in AISI’s latest estimates of steel imports: ‘Through the first seven months of 2021, total and finished steel imports are 17 729 000 and 12 086 000 net tons, up 17.4% and 20.6%, respectively, versus the same period in 2020.’

According to Timothy R Fiore, chair of the Institute for Supply Management’s Manufacturing Business Survey Committee, respondents reported their companies and suppliers ‘continue to struggle at unprecedented levels to meet increasing demand’. Fiore said all segments of the manufacturing economy were impacted by record-long raw-materials lead times, continued shortages of critical basic materials, rising commodities prices and difficulties in transporting products. But he added: ‘Optimistic panel sentiment remained strong, with eight positive comments for every cautious comment.’

Exports to Asia are another matter because of the high shipping costs which have to be passed on when possible. Argus Media reported in early September that ‘The Argus daily containerised HMS 1/2 80:20 cfr Taiwan assessment was unchanged at US$ 445 per tonne. Buyers’ unwillingness to increase buying price will result in less US offers to Taiwan as sellers are unable to decrease prices because of high container freight costs and rising domestic transportation fees.’ 

It also noted that US sellers could soon face concerted competition from Japanese scrap exports for the first time in months after Tokyo Steel indicated new domestic price cuts and Japanese offers to Taiwan moved lower.

SHIPPING SHIFT

Few reports on trade in materials these days fail to mention the soaring costs of shipping and logistics in general. A shift by recyclers away from containers has been noted by a leading expert on international commodities trade, Peter Sainsbury, former lead economist at the UK sustainability charity WRAP and now head of Materials Risk, a commodity market intelligence and advisory firm.

’Commodities such as scrap metal are increasingly being transported via dry bulk ships,’ he told Recycling International. ‘However, the dry bulk market is enjoying its own boom as iron ore, coal and grain producers look to take advantage of a rebound in demand, divided supply chains and Covid-19 induced congestion. A record low ship order book is also likely to mean scrap metal shippers will continue to face commercially challenging transport conditions.’

The Baltic Dry Index, which factors in rates for shipping vessels, hit an 11-year high at the start of September which has been attributed to a return to higher demand coupled with shipping constraints, especially in China. Although the numbers are eye-watering, Yahoo Finance noted that the Baltic Dry Index’s all-time high on 20 May 2008 (during the world banking crisis) was approximately triple the current level.

SCRAP GAP

The upward trend for prices for HMS 1/2 80:20 cfr Turkey from the EU has ben reversed in the past two months, dropping to US$ 478 per tonne in July and US$ 466 per tonne (see chart). In the EU, meanwhile, concern is being expressed about a growing gap between prices secured for obsolete scrap and new scrap.

Steel mills are reported to be indicating bids that would suggest prices for E1 obsolete scrap down by EUR 40-50 per tonne on August levels with those for new scrap being EUR 10-20 per tonne off. If mills succeed in buying at their targeted rates, new scrap prices across Europe would fall to around EUR 420 – 450 while E1 (old scrap) prices would go below EUR 350 in some areas.

Suppliers concerned at the trend argue such a spread is unsustainable. Prices for flat steel in Europe had grown for several months earlier in the year before levelling off in the summer. There are suggestions they may even fall this winter because of cheaper imports. An indication of this trend comes from the Belgian port of Antwerp which reported an iron and steel throughput of 4 720 000 tonnes in the first six months of the year, up by nearly 40% on the same period in 2020, although some that growth would be accounted for by fewer Covid restrictions this year.

SECTION 232 CHANGES

It appears that progress is being made towards the planned ending of the US’ Section 232 blanket tax of 25% on steel imports from the EU. The regime was introduced by President Donald Trump in 2018 and the result has been a halving of all EU exports to the US. The recent EU-US summit under new President Joe Biden agreed to make changes by December. European commissioner for trade Valdis Dombrovskis said the two sides were looking to resolve the issue by the end of the year. ‘After the EU-US summit, I’m more optimistic that a solution will be found,’ he said.

With US domestic prices for hot rolled coil at historic highs, a group representing 30 000 US metal manufacturers and users has again urged President Biden to drop Section 232 tariffs. ‘The crisis involving steel prices and supply continues to worsen,’ the Coalition of American Metal Manufacturers and Users (Cammu) said in a statement. It claimed the US had become ‘an island of high steel prices’.

According to Cammu, US manufacturers are now paying up to US$ 1 334 per short ton more for hot rolled coil than competitors in China and US$ 734 more than those in Europe. It also argues that current utilisation rates of around 85% are significantly above the levels that prompted the introduction of Section 232 so market conditions have changed.

STEEL PRODUCTION

Production of crude steel globally rose 3.3% in July, year-on-year, according to the World Steel Association (worldsteel). The July total of 161.7 million tonnes (Mt) was, as ever, dominated by China which produced 86.8 Mt in July 2021 but that country’s total was down 8.4% on July 2020. On the other hand, India’s total rose by…

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