India's ferrous scrap consumption rises over 15% y-o-y in Jan-May'24 - BigMint data

• Scrap demand in steelmaking rises 17% y-o-y to 14.5 mnt
  
  
• Share of domestic scrap at nearly 80% in 5MCY'24
  
  
• Scrap demand expected to exceed 35 mnt in 2024
  
  

Morning Brief: India's ferrous scrap consumption, both for steelmaking and in the foundry industry, stood at around 16 million tonnes (mnt) in January-May 2024 (5MCY'24), an increase of 16% as against 13.43 mnt in the same period of last year. Scrap consumption in steelmaking rose by 17% y-o-y during January-May to 14.51 mnt compared with 12.39 mnt in the year-ago period, as per the latest BigMint data.

Domestic consumption climbed to 78% of total steel scrap consumption, amounting to 11.27 mnt in 5MCY'24 compared to 57% (7.10 mnt) in the year-ago period. Therefore, the share of imported scrap dropped to 22% (3.24 mnt) in 5MCY'24, down from 38% (4.66 mnt) in the corresponding period of last year.

Total scrap consumption in 2023 stood at over 31 mnt, as per data.

Evolving scrap consumption trends:

Demand rises parallelly with growing steel output: India's steel production in 5MCY'24 stood at 61.9 mnt, as per World Steel Association (WSA) data, up 7.7% y-o-y. The country's crude steel production in 2023 was 140.2 mnt, which was an increase of nearly 12% y-o-y. So, ferrous scrap demand in steelmaking shows an unmistakable growth trend.

Higher domestic scrap availability: Domestic scrap generation for the full year of 2023 rose to an estimated 27.5 mnt against 26.5 mnt in 2022 and in FY'24 domestic generation increased by 1 mnt y-o-y to 29 mnt. The sharp rise in domestic scrap demand in 5MCY'24 points to increased availability after the streamlining of GST issues facilitated smoother transactions and collection.

Moreover, policy enablers such as the domestic vehicle scrappage legislation have resulted in an exponential rise in vehicle recycling facilities. As per estimates, India's ferrous scrap generation from ELVs will touch 5.3 mnt in the current fiscal. Scrap generation from the Railways and domestic ship-breaking has also contributed to higher domestic availability.

Imports less cost-effective than domestic: Domestic scrap consumption increased due to the availability of cost-effective local scrap. For instance, in January European-origin HMS (80:20) scrap was offered at $397/t CFR Nhava Sheva, equivalent to INR 36,000/t (including inland freight and port clearance charges), while domestic scrap was priced at INR 33,100/t DAP Jalna, as per BigMint data. This trend continued from February to April but by May imported and domestic scrap prices were nearly at the same level.

Furthermore, geopolitical issues such as the Red Sea crisis have resulted in a redirection of shipping routes and higher freight costs which was another reason for buyers' increasing dependence on domestic material. Bulk bookings of imported scrap also fell to 140,000 t in 5MCY'24 from 160,000 t in the year-ago period.

Outlook

If the growth rate of 16% witnessed in 5MCY'24 persists through this year, India's overall scrap consumption is expected to rise by around 5 mnt in 2024 to approximately 36 mnt. However, the downsides to this guesstimate are a) higher steel capacity addition through the BF-BOF route as opposed to the scrap-intensive EAF-IF route; b) the possibility of higher ore-based metallics production and usage in EAF-IF steel production amid softening domestic coal and iron ore prices; and c) the lack of availability of cost-effective imported scrap amid higher souring by other major seaborne consumers.

However, the scrap consumption growth trend is certainly a long-term one and higher domestic scrap generation is crucial to address availability issues.