Global seaborne ferrous scrap trade drops in CY22 amid supply squeezes

• Exports from key countries drop amid tepid demand, decarb focus
  
  
• EU steps up efforts to curb scrap exports to non-OECD countries
  
  
• Consumption may rise but seaborne trade may drop in long term
  
  

Morning Brief: Global seaborne ferrous scrap trade dropped almost 6% to 67 millon tonnes (mnt) in calendar year 2022 compared to 71 mnt in the preceding year, as per SteelMint data.

Importantly, all the exporting countries reported a y-o-y drop, including the top two suppliers - the United States and Japan.

Leading scrap supplier US saw its volumes drop 4% to 17 mnt against nearly 18 mnt in 2021. Japan, the second-highest supplier in 2021 with 7 mnt, saw volumes chip away 14% to 6 mnt last calendar.

Also, seven European Union countries which fell within the top 10 suppliers in 2021 saw volumes drop in 2022. France, Germany, Belgium, Czech Republic, Denmark, Sweden and Ukraine contributed almost 21 mnt in 2022 but saw their volumes drop y-o-y.

Why did seaborne volumes decline?

• Steel demand drops: Scrap procurement dropped because of the general decline in steel demand globally as energy prices soared, and many mills in Europe closed down temporarily.
  
  
• Crude steel output drops: Of the top 10 crude steel producers, all, except India (up 5.5%) and Iran (up 8%), showed a y-o-y decline.
  
  

• High energy prices hit electric furnaces: High energy and gas prices put power intensive EAFs and IFs in a cost quandary, forcing many to procure billets which were cheaper than scrap.
  
  
• Currency slide: The year was marked by a currency slide across the globe, making imports costlier.
  
  
• Liquidity crunch: As inflation soared, central banks across the world tried to suck liquidity out of their economies by raising interest rates. This scenario led to an increase in the cost of funds and a liquidity squeeze.
  
  
• EU looks to limit exports: The EU has been restricting ferrous scrap exports to non-OECD (Organisation for Economic Co-operation and Development) countries in a bid to create a robust and more organized and integrated market for secondary steel-making raw materials to dovetail this with its circular economy policy.
  
  

More recently, the Environment Committee (ENVI) of the European Parliament voted in favour of new changes to the Waste Shipment Regulation (WSR). These include a stronger monitoring of non-hazardous waste sales to non-OECD countries, with the possibility of limiting sales to specific countries. The latest decision indicates, exports will only be allowed to "those non-OECD countries that give their consent and demonstrate their ability to treat this waste sustainably". Such developments will impact the EU's ferrous scrap exports further. Non-OECD importers of European scrap include India, Pakistan, Bangladesh and China.

US scrap generation, collection hit: Scrap generation in the US was impacted by weak domestic and overseas demand. Collection was limited due to high fuel prices. As fuel prices rose, scrap collectors were hit hard by rise in logistics costs. Also, high summer temperatures and freezing winter impacted both generation and collection.

Japan's stress on decarbonization: Japan, the third largest supplier in 2021, saw its exports drop considerably in CY22 despite the fact that its own crude steel production was down 7.2% in CY22. This is mainly because it is stressing on steel-making through the electric furnace route, where scrap is the key feed. Japan is aiming for carbon neutrality by 2050. The steel industry is Japan is one of the largest emitters (14%) of Co2 among all industrial segments due to its large manufacturing volume and reducing emissions is one of its key missions.

Key importers

• Turkey maintains lead but volumes drop: The leading importer in 2022 was Turkey. Even though it retained its leading position, volumes dropped 16% to 21 mnt against 24 mnt in 2021. It retained its rank by sheer dint of its volumes.
  
  

One key reason for the drop lay in imports of substantial volumes of cheap billets from Russia to offset high energy costs. Secondly, high energy costs and inflation dented end-user demand and increased cost of production. Thirdly, the currency depreciation made imports expensive. Fourth, the Russia-Ukraine war hit Turkey's flat steel demand from Europe. The above factors combined to reduce crude steel production, which dropped almost 13% in 2022.

• India becomes second-largest importer: India showed remarkable resilience in the face of the currency slide and eroding rupee to snap up huge volumes by driving a hard bargain. Imports skyrocketed 106% to almost 8 mnt last year (3.78 mnt in 2021). India was the only bright spot globally in terms of crude steel production and thus the imports had relevance, making it nudge its way up from 9^th slot in 2021. The bulk cargo, which found no takers in the traditional markets of Turkey and other South Asian countries, had ready buyers in India.
  
  
• Rising melting capacities in Bangladesh: Bangladesh, usually one of the top buyers, showed a 35% y-o-y increase in 2022 to over 5 mnt against almost 4 mnt in the previous calendar despite the many challenges it faced in the latter half of the year. SteelMint's analysis shows that several capacities that had been installed a couple of years ago became operational this year. This development necessitated substantial imports of scrap earlier in the year, which boosted the overall volumes. However, towards the latter part of 2022, the market became quiet amid inflationary pressures, eroding currency and compulsion to preserve foreign exchange which forced the country to ban opening of new letters of credit (LCs).
  
  
• Pakistan beset by challenges: From a consistent importer, Pakistan's volumes dropped the second-highest, by 28%, to around 3 mnt (over 4 mnt in 2021). Beset by political turmoil, floods, sliding currency, inflation, and the resultant closure of many mills led to decreased appetite for imports.
  
  
• High inflation hits Vietnam's construction demand: From being the second-highest scrap importer in 2021, Vietnam got relegated to 7^th position. Volumes decreased more than 35%, the steepest among top the importers, to 3.67 mnt this year compared to 5.67 mnt in 2021. Vietnam's Covid resurgence and slow construction activities impacted steel consumption. On the other hand, higher domestic crude steel production forced mills to turn exporters.
  
  

Global ferrous market overview

The total global seaborne ferrous scrap trade is at 105-110 mnt per annum, as per worldsteel data. The top 15 importers contribute 65-70% of the total seaborne trade. SteelMint's top 15 table has not included other EU countries whose procurements are mainly intra-Continental.

Outlook

Of the total steel produced globally, which dropped 4.3% to 1,831.50 mnt in CY22 (as per worldsteel), 25-30% is manufactured using ferrous scrap. Each major steel producing country is stressing on green methods of steelmaking, in a bid to decarbonize. This may lead to an increase in scrap consumption globally, but the seaborne trade may remain stable or even drop as countries vie to protect their ferrous recycled material for domestic usage.