Global ferrous scrap trade drops 10% in H1 What lies ahead?

• Drop in global crude steel production drags down scrap intake
  
  
• Turkiye's demand rebound remains elusive
  
  
• H2 may see increase in trade volumes
  
  

Morning Brief: Global ferrous scrap trade volumes, excluding European intra-trade, dropped around 8% y-o-y in January-June, 2023 (first half), reveals data maintained with SteelMint. Total imports in H1 declined to around 27 million tonnes (mnt) compared to almost 30 mnt in H12022.

While Turkiye continued to be the global leader in ferrous scrap imports, its volumes slid sharply, dragging down overall volumes. That apart, other key importers like Vietnam, South Korea, and Bangladesh also saw a drop, which impacted the global seaborne trade.

Factors dragging down imports

1) Global crude steel production drop: Global crude steel production in H1 dropped 1.1% to 943.90 mnt, a key reason behind the fall in seaborne ferrous scrap trade in this period.

The European Union in particular is struggling with inflation and lower demand. The EU-27 crude steel output declined 10.9% in H1 and that of Europe, Other, by 14.1%. North America saw a 3.5% drop in output.

Currency depreciation, shrinking forex reserves, and inflation affected steel production and scrap demand in South Asia.But, as demand softened in Bangladesh, Pakistan, and East Asia, scrap flows to India increased.

2) The China factor:China was very active in exports with highly competitive offers, which lured end-buyers from many importing regions, capping their crude steel production in lieu of cheaper imports. Chinese exports rose 30% y-o-y in H1. But crude steel output grew a modest 3% in Middle East and by 0.7% in Asia & Oceania (including Southeast Asia) and degrew 7% in South America.

Country-wise break-up

Here is a look at the ferrous scrap import trends in some of the key countries in H1:

Turkiye's demand rebound eludes: This country is the world's largest ferrous scrap consumer. However, H1 volumes dropped a sharp 22% to 9.60 mnt against 12.27 mnt seen in H12022. The reasons are not far to seek. Belying expectations of a robust demand come-back for reconstruction post-the February 2023 earthquake, Turkiye has been grappling with its own challenges. These include rising inflation and a sliding lira, which have made imports costlier by far.

Energy and gas inflation have fallen off from their peaks in 2022. Turkiye's consumer price index may have fallen from a historic peak of 85.51% in October 2022 to 38.21% in June 2023. But this level is still way higher against the 8.55% seen in October 2021. The lira has been steadily losing to the dollar since last year. From levels of 18.62 in early January, it is grovelling at around 27, an almost 69% erosion since the beginning of 2023. Thus, cost escalation has pinned down demand.

That apart, global demand has remained subdued ever since Russia invaded Ukraine last year. Turkiye was a key finished steel supplier to Europe, but the war has dented this market heavily.With both home and away demand down, Turkiye's crude steel production eroded 16% y-o-y in H1.

The fall in rebar export prices in H1 by around $75-80/t further affected scrap imports.

India's crude steel output rises: Scrap imports in H1 rose a whopping over 155% to 5.25 mnt against 2.06 mnt in H12022. India's steel demand was moderately good in H1 with crude steel production up 7.4% -- the highest amongst the top 10 steel-producing countries. Production increased 5% y-o-y to 66 mnt in H1 from 63 mnt in H12022. Finished steel consumption increased 11% y-o-y to 40.622 mnt in April-July, 2023 as against 36.679 mnt in the same period last year. Domestic scrap generation was scarce, which also supported the higher imports. Scrap consumption rose 4% in H1 to 13.95 mnt from 13.4 mnt in H12022.

Europe-origin shredded scrap prices fell by $110/t from January 2022 till June 2023, as buyers in South Asia stayed away, impelled by economic instability and LC issues. This scenario led to some inventory pile-up with suppliers. This price fall lured Indian buyers, especially since domestic material was comparatively costlier. India became the preferred choice for US- and EU-origin bulk cargoes as Turkish demand ebbed. India thus retained its position as the second-largest scrap importer.

Vietnam plagued by low domestic demand: Volumes dropped 6% to 2.04 mnt against 2.17 mnt in H12022. Several factors kept Vietnam's scrap imports on the lower side. Finished steel production during the period under review stood at 13.1 mnt, down 21% y-o-y. After falling 2.3% in 2022, Vietnam's steel demand still remains subdued due to stagnant construction industry, monetary policy tightening, and exchange rate fluctuations. That apart, like Turkiye, Vietnam too was a prolific supplier of value-added hot rolled coils to Europe, a market that has lost sheen for more than a year now.

South Korea receives less scrap from Japan: This East Asian country's ferrous scrap fortunes are linked to Japan's from where it buys high-quality material. Volumes saw a 22% y-o-y drop in Q1 to 2 mnt (2.55 mnt) as Japan's crude steel production fall has been narrowing. In June, the decline was only 1.7% against much steeper drops witnessed over January-May. This denotes that Japan's scrap exports have decreased because much of it is being diverted towards domestic crude steel production and there are lesser volumes for exports. Also, US supplies to Korea have been tight with its own imports rising almost 6% in H1.

Bangladesh felled by inflation, low demand: A country fully dependent on ferrous scrap for steel-making, saw volumes fall a significant 34%. A steady decline in domestic steel demand amid inflationary pressures, and currency devaluation saw Bangladesh losing appetite for scrap. Prices of Europe-origin shredded declined by almost $100/t from January 2022 onwards, signalling weaker demand from Bangladesh. As a result, shipments from key supplier, the UK, reduced.

However, market participants observed that opening new letters of credit (LC) became easier over the last few months, which helped to shore up imports towards the second half of H1. Major bookings were heard from Hong Kong and Australia.

Outlook

The global ferrous scrap trade volumes will likely improve in H2. Chinese steel exports may decrease amid production cuts and supportive policies that can whet domestic demand.

Inflation, interest rates and energy prices are likely to ease further in H2 and induce increased steel consumption, and hence higher production. This may translate into higher scrap demand.