India's ferrous scrap consumption rises 12% y-o-y in Jan-Oct'23

• Demand rises on nearly 10% y-o-y growth in crude steel production
  
  
• Imports surge 70% y-o-y on cost-effectiveness, altered trade flows
  
  
• Price viability with DRI keeps scrap demand supported
  
  

India's ferrous scrap consumption stood at 24.24 million tonnes (mnt) in January-October 2023 (10MCY'23), an increase of 12% against 21.59 mnt in the corresponding period of last year, as per the latest SteelMint data.

While domestic scrap consumption was assessed at 15.32 mnt, around 8.27 mnt of ferrous scrap was imported during the period. Therefore, the share of domestic scrap in overall consumption was around 63%, with the rest being accounted for by imports.

Factors driving scrap consumption

Steel production rises: India's crude steel production reached 112.84 mnt in 10MCY'23 compared to 103.49 mnt during the same period last year - an increase of 9% y-o-y. The ratio of BF-BOF to EAF-IF steel production in India is roughly around 45:55 and scrap is consumed in both routes. SteelMint estimates that in the metallic mix in IF-EAF steelmaking during the period under review around 29% was recycled ferrous material, while the rest 71% was accounted for by DRI, hot metal and pig iron.

Primary steelmakers, too, have increased the use of scrap in SMS (used as a coolant to temper exothermic chemical reactions in the BOF). Primary mill sources estimate that use of 1 tonne of scrap cuts process emissions by 2.5 t of CO2.

Surge in imports: Imports of scrap into India experienced a substantial 67% growth during the period under review reaching 8.27 mnt compared to 4.95 mnt in the year-ago period. This is mainly due to growth in crude steel production and GST raids and liquidity crunch impacting domestic scrap supply.

Geopolitical upheavals redirecting global trade flows and subdued demand in major scrap consuming nations, especially Turkiye and South East Asia, drove higher shipments to India. In addition, preference for imported scrap was due to cost-effectiveness vis-a-vis domestic material, thanks to a sharp decline in global bulk scrap prices and CFR India prices for HMS (80:20) dropping from as high as INR 40,389/t in March to as low as INR 35,436/t in October (around 14%). Higher sourcing by primary steel mills also led to an increase in scrap charge in their ferrous mix.

Rising viability against DRI: Scrap demand in the secondary steel sector's metallic mix is largely regulated by domestic sponge iron (DRI) and other metallics (such as pig iron) prices. Data shows that DRI became more viable during the June-August period, as prices fell by 15% from April levels. However, the metallics value gap reduced quickly in September-October as sponge iron prices ticked up on higher domestic iron ore and imported thermal coal prices, as well as strong domestic and export demand. In fact, sponge iron still traded at a premium to scrap in October.

If scrap and DRI prices are equal, scrap is more economical to use, inform sources, as adding of alloys are not needed (which are already present in scrap) and the cost of electricity consumption and flux generation is higher for DRI than for scrap.

Outlook

India's scrap consumption in steelmaking, which stood at around 28 mnt in FY'23, is projected to rise incrementally with rapid growth in steel production. Calculating on the basis of the 12% growth rate seen in 10MCY'23, consumption in the ongoing fiscal should reach around 31-32 mnt. Demand will rise on the government's push to primary steelmakers and even foundries to raise scrap usage in view of sustainability targets.

On the other hand, GST raids and government intervention to streamline the largely unorganised sector may create supply tightness in the near term. Imports will grow steadily due to low domestic generation as against demand. At the same time, increased demand from the primary mills may actually lead to domestic supply tightening even further, which is expected to boost imports.

In the long run, scrap consumption will remain supported on government initiatives to increase EOL scrap generation and may also rise sharply in case of reduction in tax rates.