Global ferrous scrap seaborne trade edges down 5% in Q1 CY'24. Know why?

• Red Sea crisis raises freights, disrupts supplies
  
  
• Flat global crude steel output hits scrap intake
  
  
• Q2 may see rising freights, changing trade flows
  
  

Morning Brief: Global ferrous scrap trade volumes, excluding the European intra-trade, dropped a provisional 5% y-o-y in January-March, 2024 (first quarter, Q1CY'24), reveals data maintained with BigMint. Total imports in Q1 declined to around 14.3 million tonnes (mnt) compared to almost 15 mnt in Q1CY'23. Data also reveals, more than 60% (14 out of 22) of the importing countries recorded a y-o-y decline in Q1.

Country-wise break-up

Turkiye continued to be the global leader in ferrous scrap imports, with its volumes rising a nominal 8% to 5.3 mnt in Q1CY'24 against 4.9 mnt in the same period last calendar. Crude steel production rebounded 28% y-o-y in Q1 as Turkish mills fought back the challenges of the sliding lira, inflation, and high energy prices with fresh investments, new capacity launches, and stress on value-added products.

India remained the second-highest importer but its volumes plunged over 29% y-o-y to 2.3 mnt (3.2 mnt), which dragged down the global total.

The US, the third-highest importer and itself a large supplier, also saw volumes declining 9% to 1.1 mnt (1.2 mnt).

That apart, key importers in East Asia and Southeast Asia -- South Korea (-52%), Taiwan (-2%), Thailand (-20%), and Indonesia (-7%) -- saw declines, which also pulled down the overall volumes.

Factors that dragged down ferrous scrap imports in Q1

Global scrap imports hit by Red Sea crisis: The Red Sea crisis, which erupted in mid-October, 2023, peaked by January 2024, with up to 90% of container vessels on the route getting affected. Efforts to secure the area, including Western naval interventions, started to take effect, reducing the frequency of attacks by late January 2024. Overall, this issue has led to a temporary contraction in market capacity and a surge in shipping rates, affecting global trade networks. The disruptions are expected to continue affecting shipping routes and costs well into 2024.

Q1 saw the disruptions reducing trade volumes passing through the Suez Canal by 40%, as ships were compelled to re-route along the Cape of Good Hope, incurring delays of 2-5 weeks as this detour increased shipping distances by approximately 40%. Consequently, several ramifications unfolded:

Increased shipping costs: Re-routing resulted in a significant spike in shipping expenses. Freight rates surged, notably by over 250% on the Shanghai-to-Europe route since early November 2023.

Supply chain delays: Extended travel times and heightened congestion caused delays in ferrous scrap deliveries, disrupting global supply chains. This posed challenges, particularly for industries reliant on timely scrap imports for production.

Buyers reduce bookings: The elevated costs and delays prompted many buyers to reduce bookings or explore alternative metallic sources, leading to fluctuating trade volumes. Some regions, notably Europe, experienced diminished import activity due to these complications.

Range-bound global crude steel output: Global crude steel production in Q1 remained largely stable with a slight 0.5 % rise to 469 mnt in (467 mnt in Q1CY'23). This also had an impact on the global scrap consumption and import trends.

Lower end-user demand in the European Union (EU) led to a significant decline in crude steel production which directly translated into lesser scrap requirements and imports by the steel mills.

The increase in crude steel production in some countries, like India and the US, despite a decrease in ferrous scrap imports suggests more reliance on domestic scrap or alternate raw materials. Currency depreciation, shrinking foreign exchange reserves, and inflation impacted steel demand yet there was a rise in steel production in Pakistan.

The China factor: Chinese steel exports maintained their upswing in Q1, rising around 28% y-o-y. China has been aggressively selling in overseas markets at cut-throat pricing to offset the poor domestic demand for a few years now. Steel importing countries too benefited -- they decreased their domestic crude steel production and bought semi-finished or finished products cheap from China. Scrap imports into such countries were impacted because of the drop in their crude steel production.

Outlook

The global ferrous scrap market is poised to see sustained availability in Q2 from key origins like the US, Europe, and Japan. However, this period may also be marked by rising freights, which could reshape trade flows. Thus, steelmakers may need to reassess their sourcing strategies, favouring suppliers in closer proximity to their operations to counterbalance escalating transportation costs.

Economic uncertainties and fluctuating production levels may result in mixed demand signals.

In response to these challenges, suppliers are expected to fine-tune strategies to optimize costs and sustain supply chains amidst shifting trade dynamics. This adaptability will be crucial for maintaining stability and resilience in the global ferrous scrap trade in Q2CY'24.