How did the global sea-borne ferrous scrap market perform in Jan-Sep'23?

• Flat global crude steel production keeps scrap imports under check
  
  
• Vietnam's imports weak amid rise in BF-route expansion
  
  
• India's imports may rise in remaining part of CY23
  
  

Morning Brief: Global ferrous scrap trade volumes, excluding European intra-trade, showed a slight drop of 3% y-o-y in the first nine months (January-September) of this calendar year (9M23), reveals provisional data maintained with SteelMint. Total imports in 9M23 added up to 42 million tonnes (mnt) compared to 43 mnt in the same period in 2022.

A key reason for the dip lies in the fact that global crude steel production in 9M23 remained almost flat y-o-y at 1.41 billion tonnes, propelled by the increase in Chinese crude steel production. The scrap-importing countries also saw total crude steel production remaining range-bound, upping a mere 0.56% in this period.

While Turkiye continued to be the global leader in ferrous scrap imports, its volumes declined 13%. That apart, among the 18 importing countries tracked, only five--including India -- showed a positive trend while the rest dropped into the red zone.

Country/region-wise break-up

Turkiye volumes impacted by decreased crude steel production: The world's largest ferrous scrap importer,Turkiye, has been undergoing highly challenging times since the onset of the pandemic, followed by the Russia-Ukraine war. Imported scrap volumes in 9M23 fell 13% to 14.50 mnt against 16.60 mnt in January-September 2022. Its average annual scrap consumption is around 25 mnt for producing around 30 mnt of crude steel annually.

Turkiye's crude steel production fell 10.1% to 24.50 million tonnes amid high inflation and energy prices, which dented domestic demand. Turkiye's central bank raised an already steep 30% interest rate to 35% recently. The lira plunged 7% to a record low of 23.16 against the dollar in June this year. On the other hand, it has been hit by dull global demand, which negatively impacted its 5 mnt of flat steel exports, much of which goes to the EU and other nearby countries.

India stocks up amid good domestic steel demand, lower scrap generation: The second-largest scrap importer, India, saw volumes almost doubling by 97% to 8 mnt (4 mnt), on account of some factors. One, domestic demand was up almost 15% in January-September, 2023, which warranted a 13% increase in crude steel production to 66 mnt in 9M23. Two, larger mills are increasingly the portion of scrap in their charge mix in a bid to make the production process cleaner. Thirdly, domestic scrap generation was tight amid GST issues and liquidity crunch. India's domestic scrap generation was down 14% in 9M23 to 13.60 mnt, necessitating higher imports.

Weak construction sector, lower supply from Japan dampen Korea's appetite: The ferrous scrap market declined due to reduced demand for steel, on the back of sluggish construction activity amid high interest rates. 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 Japan witnessed a decline because of lower scrap generation and higher domestic usage. Against 2022's exports of 6 mnt, 9M23, Japan's scrap exports are at less than 5 mnt.

Thus, Korea's scrap imports were down 18% to less than 3 mnt (3.5 mnt) in 9M23.

Vietnam expands BF-route expansion capacity: Imported scrap volumes here dipped 7% to 2.70 mnt (3 mnt). The key reason behind Vietnam's falling scrap imports lies in the fact that the country has been expanding its blast furnace route of production since the last one year or so. From a 70:30 ratio of EAF: BF, it has now changed to 50:50 with major domestic mills undertaking BF capacity expansion, which is necessitating more usage of iron ore rather than scrap.

Thus, from being the second-largest scrap importer, Vietnam is now relegated to the 7th position. That apart, sluggish domestic demand, and slowed exports are also taking a toll on scrap demand, resulting in a 13% drop in crude steel production in January-September, 2023 to 14 mnt.

South Asian buyers hit by sliding currencies, inflation: 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. This led to overall decline in crude steel production. Bangladesh's production was at 5.2 mnt in 2022 while Pakistan's dropped 15% to 4 mnt in January-September 2023.

Europe looks inward: EU-27 imports remained range-bound at 3 mnt. This region is concentrating on domestically produced high-quality scrap as it tightens its carbon-limiting measures in the form of CBAM. Moreover, EU domestic steel demand is also subdued leading to a drop in crude steel production by 9% in January-September, 2023.

Outlook

The remaining part of CY23 may see little change in scrap import trends. Arrivals to India are expected to go up though, amid good steel demand. With the onset of winter, Europe may witness lower lifting of material, while South Asia's macro parameters will continue to pressure demand.