Global ferrous scrap consumption dips marginally in CY'23. Know why?

• BOF share in global crude steel-making increases
  
  
• Key importing countries see drop in crude steel output
  
  
• Exporting countries tighten supply noose in protectionist stand
  
  

Morning Brief: Global ferrous scrap consumption fell a marginal 5% to 588 million tonnes (mnt) in 2023, compared to 620 mnt in 2022, reveals data maintained with SteelMint.

Data also indicates that China, which enjoys a leading 42% share in the entire global scrap consumption pie, imported consumed a humongous 237 mnt, a 5% increase, which kept last year's volumes more or less stable, with a marginal dip. Amongst the balance 10 major buyers (who cumulatively imported consumed around 310 mnt), seven experienced a y-o-y decline.

Why did global scrap consumption dip last year?

Scrap usage in steel production dips: The surge in crude steel production through the basic oxygen furnace (BOF) route played a significant role. Out of the total crude steel production of 1,905 mnt in 2023, approximately 70% was manufactured via BOF, while the remaining 30% utilized scrap as a feedstock. This marked a shift from the 69:31 iron ore:scrap ratio observed in 2021 to the current 70:30. This scenario is an outcome of expansion plans conceived earlier when decarbonisation had not gained the prominence seen today. Simultaneously, iron ore consumption in crude steel production increased by 4%, to around 2,519 mnt in 2023, up from 2,426 mnt seen in the previous year.

Importantly, Turkiye, the largest scrap importer globally, faced an 8% y-o-y decline in crude steel production to 32 mnt in 2023 (35 mnt in 2022). This downtrend contributed to the overall decrease in global scrap consumption.

Crude steel production falls in key South Asian markets: Key South Asian scrap importers Pakistan and Bangladesh also reported a drop in crude steel production in CY'23. Bangladesh's dropped 10% to 4.70 mnt last year, while Pakistan's was down a sizeable 30% to 2.07 mnt. In Bangladesh, the steel sector has been sluggish amid weak sentiments for finished steel. A severe forex crunch was followed by prolonged bans on opening new LCs. Likewise, Pakistan struggled with energy inflation, currency fluctuations, and increasing power tariffs.

Fall in global scrap trade flow: The top eight seaborne scrap consumers last year were Turkiye, India, Bangladesh, South Korea, Vietnam, Taiwan, Pakistan, and China, which collectively contribute 82% (45.57 mnt) of the global trade.

However, total global seaborne ferrous scrap trade volumes are expected to dip around 5% in CY'23 impelled by inflation, currency slides, high energy tariffs which have colluded to restrict demand. Geo-political factors mainly contributed to the above scenario.

Restrictions within exporting countries: In October 2023, the UAE extended an existing ban on exports of scrap metals for three months- until 19 December. The country had first imposed a four-month ban on scrap exports in May 2020 and has continued with the policy to support its own domestic steel sector. Although exports continue to India, Pakistan, and Bangladesh, Customs crackdowns in India have resulted in a drop in import volumes.

Asia's leading scrap exporter, Japan, which shipped 7-9 mnt over 2018-20, witnessed a decline in exports to about 6 mnt in CY'22 from 7.02 mnt in CY'21 and 5.54 mnt in 10MCY'23 as it stresses on a clean environment.

The EU is proactively envisaging a scrap export ban.

Outlook

Looking at the short-to-medium term, market participants feel consumption will remain muted till February this year. But, procurements for March are already seeing an increase of $15-20/t in offers as freights are seeing an uptrend because of the Red Sea crisis. However, many feel this development is temporary and will not disrupt supplies or prices for long. "It started in November and by March, the scenario should be under control," a source observed.

In the longer term, scrap consumption is expected to increase as green steel-making methods gain currency. But, scrap availability will become tighter as 60 governments have already implemented caps, or are in the process of banning scrap exports with an eye on their own decarb goals.