India's ferrous scrap imports at 6-year high. Know why?

• Imports up over 80% y-o-y in Jan-Nov, to hit 6 yrs high
  
  
• Cargoes to India rise amid low demand from other importing countries
  
  
• India's currency declines relatively lower compared to other scrap importing nations
  
  

India's ferrous scrap imports have hit a 6-year-high, as per data with SteelMint since 2017. India's ferrous scrap imports rose by 26% m-o-m to 1.35 million tonnes (mnt) in November 2022, as per customs data. This was the highest scrap import volume recorded in a month.

Out of 1.35 mnt, the share of bulk imports was at 34% or 0.45 mnt, and 66% at 0.9 mnt was the share of containerised scrap.

Ferrous scrap import volumes in January-November this year stood at around 6.31 mnt, a whopping 83% increase compared to 3.45 mnt in the corresponding period of last year. Interestingly, out of 6.31 mnt, the share of bulk scrap exports till November stood at 1.14 mnt.

Imports by grade: HMS grade scrap has been registered as most traded grade with around 4.2 mnt in January to November. Secondly, another most traded grade was shredded at 1.6 mnt during the same period. Other commonly traded grades were LMS, turning, cast iron, re-rolling and motor scrap.

Highest imports in last 6 years: Ferrous scrap imports hit the highest yearly imported quantity in the last six years. In these years, the UAE remained the major scrap supplier despite its ban on scrap exports, which was again recently extended further till March 2023.

Other major countries were the UK, US and South Africa, while a few countries like Singapore, Australia, Canada, Malaysia, Kuwait and Brazil supplied small quantities.

Importantly, the country will be the second-largest scrap importer after Turkiye in 2022.

Factors driving imports

1.India's currency declines relatively lower: The INR showed more resilience compared to other currencies. Its depreciation was lower compared to countries like Turkey and Bangladesh which are key importers of scrap (accounting for over 50% of seaborne imports). While the Lira corrected over 40% in one year, the INR corrected around 10%. On the other hand, the BDT dropped over 20%, while the Pakistani rupee declined by around 25%.

2.South Asian countries lack appetite: Both Bangladesh and Pakistan are voracious scrap consumers (accounts for around 15% of seaborne imports). However, they are just not showing much appetite. Bangladesh's sliding currency and LC opening restrictions from banks have made imports costlier. Pakistan is struggling with dull finished steel demand, political turmoil, liquidity crisis, and currency depreciation. Both countries are plagued by power outages, and weakening currencies are making scrap imports costlier. These factors are pushing mills to cut production Furthermore, suppliers actively traded with India in the absence of Turkiye, which is the top scrap buyer.

3.India posts strong crude steel output: India's crude steel output in the January-September period this year recorded growth of 6.4% y-o-y, while China and the US and UK witnessed de-growth. In fact, India was the only bright spot in the global steel industry. In Turkiye, for example, crude output declined by 9.3% y-o-y. Therefore, scrap imports by India remained firm. India's steel output is projected to grow, and many Tier-I mills such as Tata Steel, JSW and AM/NS India are scaling up their scrap consumption in a bid to reduce carbon emission levels. Therefore, the demand outlook remains positive.

India's overall ferrous scrap consumption in the last financial year 2021-22 (FY22) stood at 24.34 mnt, rising 37% y-o-y compared to 18 mnt in FY21. Out of this, the share of imported scrap was 3.35 mnt, a drop of 20% from 4.20 mnt in FY21. Domestic scrap consumption in the last fiscal touched 21 mnt from 14 mnt in the previous fiscal. The Indian government in its recently released Vision 2047 documents expects the EAF-IF route to contribute around 180 mnt of India's total steelmaking capacity of 300 mnt by 2030. According to the draft National Steel Policy for Secondary Steel Sector - 2022, the government has projected that scrap consumption will rise to 145 mnt by 2047. While consumption is projected to touch nearly 30 mnt by 2025, it is expected to inch up to 50 mnt by FY30.

Outlook

Indian mills are likely to remain active in the market in the absence of Pakistan and Bangladesh, owing to liquidity issues, power cuts, political instability, and most importantly, the LC opening issue. However, with the removal of the export duty, steel exports may pick up, which in turn may support domestic steel prices.

Steel exports are likely to inch up marginally in the remainder of this calendar year, given global tailwinds and the lag showing for bookings. However, Q4FY23 is likely to see higher overseas bookings by Indian mills as well as higher operating margins for the primary steel producers, who would typically aim for 15-20% of exports out of total annual sales.

Further, imported scrap prices are likely to remain supported as European countries will close for the winter holidays. Trades are likely to slow down in January-February 2023.

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