Page 41 from: September 2007

M A R K E T A N A L Y S I S

furnaces (EAFs). In the first half of
2007, Russian steel mills are said to
have bought 19% more scrap than in
the same period last year, whereas
scrap exports declined 12%. The ex-
port share was 31% in 2006 com-
pared to 38% in 2005.

Turkey remains the leading ex-
port destination for North American
and European scrap, having bought
some 15 million tonnes of foreign
scrap in 2006.

Exporters were able to stand firm
against excessively low Turkish of-
fers as they had enjoyed a strong fi-
nancial performance in the first five
months of this year. And besides,
they were also expecting renewed
demand from traditional importing
countries such as Italy and Spain
following the holiday period.

Meagre Chinese imports

High freight rates have combined
with the absence of China’s scrap
buyers from the market to reduce
trans-ocean shipments of scrap to
South East Asia. Recent figures
show that China imported only 1.84
million tonnes of ferrous scrap in the
first seven months of this year, near-
ly 50% less than in the comparable
period of 2006. US West Coast ex-
porters saw their shipments decline
by a dramatic 90.7% in the first half
of this year compared to the corre-
sponding period of 2006.

China’s main suppliers in first-half
2007 were the Philippines (292 000
tonnes), Japan (275 000 tonnes) and
Kazakhstan (116 000 tonnes). The
figures reveal Chinese imports from
Hong Kong of 176 000 tonnes, al-
though this material originated in a
host of other countries and regions,
including possibly the EU. On the list
of China’s suppliers, the USA was
down in eighth place on a meagre 82
000 tonnes; in the past, US West
Coast shipments have exceeded one
million tonnes over a similar period.

No EU countries appear on this
list of China’s top 10 scrap suppliers,
possibly because of the high freight
rates. US West Coast exporters have
no alternative but to ship their scrap
to South East Asia, no matter what
the price.

Other Asian scrap importers – such
as South Korea, Taiwan and Vietnam
– have been offering slightly better

prices, but these were not enough to
compensate for the steep increase in
freight rates. South Korea’s Dongkuk
mill was able to purchase high-quali-
ty A-3 scrap from Siberia for only
US$ 342 per tonne cfr in August,
while its main domestic competitor
Hyundai bought No 1 scrap from the
US West Coast for just US$ 350 per
tonne cfr. However, late August Tai-
wan bought U.S. HMS1 scrap for a
price of US$ 386.50 cif.

In Germany, prices fell signifi-
cantly in August as purchases by the
country’s main buyer – Italy – came
to a virtual stand-still due to the pol-
icy adopted by some Italian courts of
defining ferrous scrap as waste. Var-
ious Italian authorities have refused
to allow scrap to enter the country
without a compliance certificate
from a competent national authority
within the country of origin. As a re-
sult, many Italian mini-mills – the
majority of which are located around
Brescia – have been deprived of their
main raw material and some have
even been forced to shut down. The
average price for the benchmark
Sorte 2 grade (new 3mm scrap) de-
livered to the German mills was
Euro 251.30 per tonne (US$ 342) in
July and Euro 235 (US$ 317) in Au-
gust. German prices differ substan-
tially according to region, but it is
obvious that the country’s southern
states such as Bavaria have suffered
most. Here, prices dropped Euro 35
per tonne (US$ 48) in August.

With UK prices sliding £5 per
tonne lower – and more in some cas-
es – during August, the EU market
was clearly rather weak last month.
A significant improvement in Sep-
tember or October may be wishful
thinking.

Rising shipbreaking prices

This year has seen a persistent
shortage of ships for dismantling in
Asia owing principally to strong
worldwide demand for bulk cargoes
and to EU export restrictions. These
latter measures were a response to
lobbying from the International
Maritime Organisation and Green-
peace aimed at protecting the health
and safety of shipbreaking industry
workers in India, Bangladesh and
Pakistan. Delivered prices paid for
ships destined for dismantling in

Scrap prices – not too high please!
The greatest threats to scrap use are substitution – by pig iron and

sponge iron (DRI and HBI) – and scrap prices rising too high.
With prices above US$ 300 fob witnessed this year, the possibility

has re-emerged of a large-scale substitution of scrap with competing
commodities. However, the steel industry boom in the fourth quarter of
2006 and the first two quarters of this year may have warded off sub-
stantial substitution activity.

The advantages and disadvantages of ferrous scrap are well known.
On the positive side, scrap benefits the environment through saving
raw materials and energy, while leading to lower levels of pollution
than with steel made from ore and coal. Scrap is also readily and locally
available, and will never become exhausted. On the downside, scrap is
not uniform in its quality and can contain impurities (and even explo-
sives if not well separated and processed). Its price behaviour is erratic
in comparison to ‘long-term’ commodities such as iron ore and coal
whose prices are generally fixed for a whole year. Major steel mills
favour scrap as the market is not monopolised by a handful of compa-
nies, as is the case with the iron ore market which is dominated by
CVRD of Brazil, and BHP/Billiton and Rio Tinto of Australia. Scrap is
supplied to the mills by hundreds of mostly independent scrap compa-
nies, many of which are still family-owned.

But a new threat has emerged: traditionally, scrap has been sold to
mini-mills, integrated mills and, to a lesser extent, the foundry sector.
BOFs consume between 10 and 25% scrap alongside liquid iron which,
in most cases, comes straight from their on-site blast furnaces.
However, there is now a gradual emergence of Energy Optimizing
Furnaces (EOF), which are able to melt without the use of scrap.
Currently in operation solely in Brazil and India, these demand liquid
iron, plus some pig iron to cool the hot metal or scrap.

Another threat is the commissioning of an iron nugget plant in the
USA which will produce material with a 96% iron content instead of pel-
lets containing 65% iron.

But as long as the scrap price remains below US$ 300 per tonne for
domestic deliveries, other raw materials will find difficulty in competing
with it since they are heavily dependent on energy to extract and trans-
port the ore to overseas markets, as well as to melt the ore in expensive
blast furnaces, often after pelletising. Coking coal also must be pre-
pared in coke ovens.

Unlike the long-term commodity iron ore with its inflexible prices
which are generally fixed for a whole year, scrap prices are flexible and
can change by the day. The scrap trade lives according to the margin
rather than the actual price – to the extent that purchasing prices can
even drop below zero, a phenomenon that has been witnessed several
times in past decades.

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