Global ferrous scrap consumption dips y-o-y in H1CY'24. What lies ahead?

• Countries with weaker industrial output see dip
  
  
• Asian countries show rising consumption trend
  
  
• CBAM to boost scrap usage in steel production
  
  

Morning Brief: Global consumption of ferrous scrap dipped by around 2%, to 325 million tonnes (mnt) in H1, 2024 (H1CY'24) from 330 mnt seen in H1CY'23, as per data maintained with BigMint.

Factors that dragged down scrap consumption in H1CY'24

The decline was mainly observed in countries like Mexico (-17%), South Korea (-12%), Canada (-2%), the US (-2%), Japan (-2%), and Russia (-2%), followed by the decline in cumulative scrap consumption by the rest of the world. This could indicate weaker industrial output or economic slowdowns.

Korea's weak steel demand hits scrap consumption: Korea, for instance, witnessed a 12% decline, suggesting weak steel demand or potential challenges in its domestic production capacity, such as energy costs and viability of Chinese steel in the market over domestically produced.

Korea is among the top 10 steel-producing countries but recorded a 6% decline in output to 32 mnt from 34 mnt in H1CY'23. The drop was a result of major mills opting for maintenance shutdowns. Sectors like automotive, general machinery, and steel are expected to show slight growth in the second half of the year after declining in the first half, as per sources.

Japan's steel production slips: Japan saw scrap consumption dipping a nominal 2% as its crude steel production also slipped 3% amid slowing demand and energy cost pressures. Construction sector demand was also subdued amid rising raw material prices and labour shortage while China took away Japan's export advantage with aggressively low offers.

North America sees production inefficiencies: The US experienced a 2% decline in ferrous scrap consumption as well as steel production, signalling slightly lower demand or production inefficiencies. Similarly, Mexico saw a 17% drop in scrap consumption, mainly due to a decline in crude steel production by 11% in H1 on weaker demand and industrial output. Canada saw a 2% dip, aligning with the overall slowdown in North American steel production, which dropped 3% in total.

Rising scrap consumption in Asian market

In contrast, the Asian region led the scrap consumption race with opposite trends overall.

China sees slight uptick despite crude steel output dip: China remained on top despite the global decline, increasing scrap consumption 2% to 127.4 mnt (124.6 mnt). The world's largest steel producer posted a 1% dip in crude steel production to 527 mnt in H1 which suggests a slowing demand in its domestic market along with a shift toward reducing overcapacity. The production drop was necessary for inventory depletion while it also dovetails with China's net zero efforts. Mills have been nursing squeezed margins for a protracted period amid the sustained low demand from the real estate and construction sector, which consumes the lion's share of around 55-60% of steel.

India's steel output rises: India saw the largest increase in scrap consumption, up 14% to 17.8 mnt (15.5 mnt). Out of this, 75% comprised domestic scrap at 14 mnt (nearly 50% higher compared to H1CY'23), and the balance 4 mnt were imported (but down 26% y-o-y, driven by the availability of cheaper domestic scrap).

In January, domestic HMS 80:20 was priced at INR 33,000/t ($394/t) DAP Jalna, cheaper by INR 4,600/t ($55/t) from material imported from the UK/Europe at INR 37,600/t ($449/t). By June, the price gap narrowed to INR 2,200/t ($26/t), further boosting demand for domestic scrap over imports.

India's 7% rise in steel production in H1 aligns with the growth in scrap consumption, as mills are increasingly relying on scrap to meet growing demand.

Vietnam's scrap consumption: Another standout was Vietnam, which recorded a 19% rise in scrap consumption and crude steel production, possibly driven its higher demand from the construction and manufacturing sectors.

Similarly, Taiwan witnessed a nominal rise of 1% y-o-y in scrap consumption in H1 at 5.2 mnt.

Turkiye's recovery boosts scrap intake: Turkiye's 17% increase in steel production corresponded with an 11% rise in scrap consumption, driven by the country's EAF-based steelmaking. It recovered from potential market challenges faced last year, reinforcing its role as a major player in the scrap trade and steel production through a resurgence in construction and infrastructure development after a period of weaker performance.

Turkiye has seen a rebound in steel production since January this year. Turkish mills fought back after facing challenges like natural disasters, geo-political upheavals, rising energy prices, and a sliding lira. Fresh investments, new capacities launched in the second half of 2023 and stress on value-added products for the domestic market are supporting higher production.

Outlook

The European Union's Carbon Border Adjustment Mechanism (CBAM), introduced in mid-2023, has prompted steel industries of major countries like India, China, and Turkiye to explore strategies to mitigate the potential impact. CBAM imposes tariffs on carbon-intensive imports of steel and other commodities. Starting from 1 January 2026, the EU will begin collecting carbon taxes on every consignment of steel products imported into the region.

The route-wise share of crude steel production globally in H1CY'24, via scrap, remained at 32% while the full year 2023's was 30%. But, as the CBAM deadline approaches, key regions like India, China, and Turkiye will increasingly focus on scrap-based steel production to curb CO2 emissions. However, protectionism will dictate scrap availability.