Global ferrous scrap trade flat y-o-y in Jan-Aug; India's volumes double

• Turkiye, South Asia lose appetite amid steel demand drop
  
  
• Indian mills lured by viable offers, stock up for post-monsoon demand
  
  
• Most countries may slacken H2 procurement, India seen going against the grain
  
  

Morning Brief: Global ferrous scrap trade volumes, excluding European intra-trade, remained flat y-o-y in January-August, 2023, as per provisional data maintained with SteelMint. Total imports in the first eight months of the current calendar added up to almost 47.80 million tonnes (mnt) compared to 47.96 mnt in the same period in 2022.

While Turkiye continued to be the global leader in ferrous scrap imports, its volumes declined 8%, impacting overall volumes. That apart, other key importers like Vietnam, South Korea, and Bangladesh also saw a drop. India, on the other hand, witnessed a huge jump.

Country-wise breakup

Turkiye sees little reason to rejoice: This country is the largest ferrous scrap importer globally. In January-August, 2023, however, its volumes dropped 8% to 14 mnt against 15.24 mnt in the same period last year. Although Turkiye resumed buying over the last couple of months, it showed little propensity to buy for the better part of the year because of several reasons.

1. The new government has been raising interest rates, possibly to rein in inflation, but this policy is restraining finished steel demand. Worldsteel data shows crude steel production was down 12% y-o-y over January-August, 2023.
   
   
2. The lira eroded 29% since the new President was elected and is currently at around 27 to the dollar, from around 18 in September last year and a far cry from 7-9 seen during the better part of 2021. The weakened currency has deflated purchasing power, making import costlier. Inflation has been heading north for long and may touch well over 50% by the end of 2023, as per experts.
   
   
3. There is the double whammy of subdued home and away demand. Drop in consumption in Europe along with western sanctions have dealt a body blow to Turkish mills. They have been addressing the weak domestic demand through cheaply procured billets from the Black Sea region, negating the need for too much of scrap.
   
   

India restocks at lower price points: The second-largest scrap importer, India has seen a whopping 125% surge in its scrap procurement, mainly on account of two factors- viable pricing and decent domestic demand. Scrap imports hit nearly 7 mnt over January-August (3 mnt in the same period last calendar). With Turkiye showing little appetite for scrap, suppliers, mainly from the US and the UK, saddled with material, sold cheap to India, a price-sensitive market.

While volumes were fairly high in January, at over 400,000 tonnes, and had been cruising at around 300,000 t for most of the months, these shot up to almost 700,000 t in August. Deep sea bulk cargoes were favoured as mills restocked with an eye on post-monsoon demand rebound. Crude steel production was also up 10.5% in January-August.

All the parcels in August were booked at $415-425/t and, even with freight costs added, the offers work out $30-35/t lesser than Turkish ones. Prices have fallen over $50/t y-o-y in July-September, 2023. That apart, India's domestic scrap availability has been intermittent amid tax raids and floods. The material is also not being offered cheap

Vietnam: This Southeast Asian country has also been beset by challenges that have eroded its scrap demand. The Ukraine war has had a far-reaching impact. The demand drop in Europe impacted exports of value-added items from Vietnam. Domestic demand was impacted by tight real estate credit policies, high-interest rates, and inflation. Thus, finished steel production fell 21% to 13 mnt over January-June and consumption by a steeper 17% to around 12.5 mnt in this period.

Thus, ferrous scrap imports have fallen 5% to 2.50 mnt (2.63 mnt) in the period under review even though prices, mainly for Japanese H2, have fallen off from $450/t CNF levels earlier in the year to a little above $380/t in August-September.

South Korea: The ferrous scrap market here declined due to reduced demand for steel, on the back of sluggish construction activity. Steel mills, consequently, cut back production, necessitating lower demand for scrap. They also preferred domestic material over imports to save on costs and delivery time from distant locations like the US and Australia. But, even imports from nearby countries like Japan witnessed a decline.

South Asia: Two key South Asia buyers, Bangladesh and Pakistan, who habitually bought 3-4 mnt per annum in the past, have seen their volumes dwindling on account of sliding currencies, inflationary pressures, and clamp-downs on new letters of credit (LCs) as the respective governments want to pull the brake on already depleted forex reserves.

Despite prices falling by over $51-53/t in Q3CY23, Bangladesh's scrap imports dropped 25% to 2.73 mnt (3.63) over January-August 2023. Offers to Pakistan fell by $45/t but procurement declined 44% to 1.18 mnt (2.12 mnt). These two countries, along with India, enjoy almost 10% of the global scrap procurement pie.

Europe looks inward: Many of the European countries showed a decline as the EU tightens its carbon limiting measures and turns towards domestically generated high-quality scrap.

Outlook

The macro parameters are not likely to change in the short-to-medium term. Hence, most scrap-consuming countries may continue to buy less till the year-end although there may be short buying sprees. India is likely to cross last year's almost 8 mnt considering that volumes have already neared 7 mnt.