How did India's domestic scrap consumption trend in 2024? Supply deficit on the cards?

• Three key states drive scrap consumption
  
  
• Price viability lures buyers to domestic scrap
  
  
• Sponge iron gives scrap strong competition
  
  

Morning Brief: India's consumption of ferrous scrap increased by 10% y-o-y in 2024 to touch 34.19 mnt compared to 31.19 mnt in the preceding year.

The increased scrap consumption was attributed to a 6% growth in domestic crude steel production in January-November, 2024, to around 136 mnt, as per data from the World Steel Association (WSA).

Factors that contributed to increased domestic scrap consumption

Three key states see rise in crude steel output: Three major states in India, where scrap is a key raw material for steel production through the electric route, mainly contributed to this trend. These are Punjab in the north, Jalna in Maharashtra, and Chennai in Tamil Nadu. The scrap consumption ratio in these states is higher than in other states. Also, scrap demand, supply, and price movements in these three regions impact the entire domestic market as well as global scrap-supplying countries.

In CY'24, the crude steel capacity in Maharashtra rose 18%, in Punjab, a sharp 38% and in Chennai, 7%.

In CY'24, the total scrap consumption in Maharashtra was at around 4.8 mnt, in Punjab, at 4.5 mnt, and in Tamil Nadu, 2.8 mnt over January to December, 2024.

Scrap usage up in metallic mix : If we look at all four regions domestically, dotted with mills using the electric furnace route, scrap consumption reached an overwhelming 28.2 mnt. The north accounted for the highest consumption at around 9.4 mnt, followed by the west at 7.3 mnt, the south at 5.8 mnt, and the east at 5.7 mnt. This is compared to just 6 mnt through the blast furnace route, further strengthening the case for domestic scrap consumption.

The share of scrap in the charge mix for producing steel in all three major scrap-consuming hubs was thus high. For instance, Punjab saw 85% scrap usage and 15% DRI. In Jalna, Maharashtra, scrap usage touched 70% with DRI at 30%; and in Chennai, scrap was at 90% with the balance 10% being DRI. Overall, these regions saw a 10% increase in scrap usage y-o-y.

Competitive pricing of domestic scrap: Imported scrap was costlier last year, averaging INR 35,160/t ($410/t) whereas domestic was cheaper at around INR 33,530/t ($391/t), attracting buyers. On average, the domestic material was cheaper by INR 1,600/t ($19/t) compared to imported European HMS 80:20 scrap. Imported scrap is increasingly becoming costlier because,

1) Supplier countries are tightening the trade, keen to preserve the material for their domestic consumption because of emission goals.

2) The Red Sea crisis led to voyage detours and longer lead times and extra fuel costs which pushed up imported scrap prices.

Types of scrap sourced from domestic market

The most consumed scrap in the domestic market across three regions are HMS, CR-Busheling, turning and boring, and some amount of light melting scrap. HMS (80:20) grade material holds the highest share among all scrap types.

Types of scrap imported

HMS (heavy melting scrap) and shredded are mostly imported.

These two are among the most commonly imported into these three state mentioned above, due to their high demand in induction furnace steel production.

Why is DRI usage increasing in key states?

In CY'24, demand for sponge iron (an iron metallic which is an alternative to scrap in India's electric-route steel production) witnessed an uptick of 9% to 54 mnt in comparison with 49 mnt in CY'23, reveals BigMint data. Sponge iron production data reflects steady growth from 43 mnt in FY'23 to 51.5 mnt in FY'24.

If we look at these three regions' charge-mix ratio, on average, a 25% increase in sponge iron consumption was seen in CY'24 -- which is a growth of around 10% compared to the previous year -- amid easier availability.

Secondly, sponge iron was cheaper by around INR 1,000/t ($12/t) compared to ferrous scrap.

Outlook

Despite the current preference for DRI, the drive to reduce carbon emissions will sustain the demand for scrap in the long term. However, a potential 12-15 mnt of annual scrap deficit could arise, especially as restrictions on scrap exports tighten in key countries, presenting challenges for domestic steel producers.