India's ferrous scrap imports cross 10 mnt in FY23. What lies ahead?

• Turkiye's absence works to India's advantage
  
  
• Domestic scrap supply drops y-o-y
  
  
• Supply tightness likely amid stringent measures
  
  

Morning Brief: India's ferrous scrap imports crossed 10 million tonnes (mnt) in financial year 2022-23 (FY23), as per SteelMint's provisional data. This also vindicates our preview in April, of 9.80 mnt.

As per the latest data, imports in FY23 touched 10.07 mnt, in which the share of bulk provisionally was at 2.20 mnt with containerized comprising the balance 7.87 mnt.

FY23 sees a humongous 180% increase y-o-y since imports in FY22 were at a mere 3.60 mnt, the lowest in the last six years, thanks to the Covid impact, which sent freights soaring in that fiscal.

Factors that helped ferrous scrap imports to surge in FY23

• India's crude steel production rises: In FY23, India's crude steel output touched a healthy 126.25 million tonnes, up 5% y-o-y.
  
  

In 2022, India was the only country to report a growth in crude steel production at 124.7 mnt, a 5.5% rise y-o-y, apart from Iran whose contribution was far lower.

Scrap consumption in crude steel production also remained stable y-o-y at around 25.10 mnt in FY23. Imported share was 10.07 mnt with domestic at 15.03 mnt. Thus, increased crude steel output necessitated higher scrap imports.

• Lower domestic scrap supply: India's domestic scrap supply decreased y-o-y, making mills more dependent on imported material. The share of domestic scrap consumption in crude steel making was at 15.03 mnt in FY23, a 36% drop from 23.39 mnt in FY22. Scrap generation within India became scarce this year because, the government, to increase accountability and increase revenue collection, began a drive to bring unofficial transactions within the GST ambit. As a result, the local, unorganised scrap generation segment went into a tizzy and stopped transactions in many regions, especially northern India. This led to a sharp drop in local scrap generation and collection. The GST drive also led to squeezed liquidity in the market which impacted the local trade too.
  
  
• Higher availability of cheaper imported scrap: On the other hand, cheap imported scrap was easily available for the better part of last fiscal. Leading ferrous scrap buyer Turkiye was on an extended leave from the imported market as it grappled with its own challenges. The Ukraine war led to high energy prices which dampened demand in Europe, where it supplies steel in good measure. Plus, Turkiye's own demand also declined against high energy prices. Its crude steel production was down 13% in 2022 and 21.50% over January-March, 2023. Naturally, its scrap consumption also nosedived. Other key buyers Bangladesh and Pakistan too stayed away amid sliding currencies that eroded purchasing power, dwindling foreign reserves that forbade opening of new letters of credit, natural calamities and an overall decline in demand.
  
  

This scenario made global scrap suppliers like the US and UK, saddled with inventory, look for alternate markets. India entered the scene and managed to get good bargains. No wonder the US and the UK were the largest sellers to India last year. US volumes catapulted by over 655% to 2.14 mnt last fiscal against a mere 0.28 mnt in FY22. Likewise, UK volumes spurted 630% to 1.58 mnt (0.22 mnt) in this period.

• Price viability: The extended absence of the regular buyers impacted ferrous scrap prices downward. Benchmark imported prices into Turkiye averaged $455/t CNF over April-March 2022-23 against $540/t in the same period in 2021-22, down 16% y-o-y.
  
  

Challenges ahead

Going forward, however, there will be challenges. Indian Customs' stoppage of clearances of containerised ferrous scrap originating in the UAE will have far-reaching ramifications on the Indian scrap sector, especially in the north, where mills use considerable quantities of such material.

A shortage is looming ahead as market participants are already scurrying to secure supplies. SteelMint heard, buyers are already exploring procurement options from alternative countries in the Middle East, Kuwait, for instance, as well as West Africa, because of the shorter lead time. While shipments from West Africa take 6-8 weeks, those from Kuwait, around 2 weeks and from other Middle Eastern countries closer to India, 5-6 days.

However, with most countries proactively adopting a protectionist stance, it will be a challenge to procure imported scrap. Kuwait has also imposed a ban although some material is still arriving but soon this may stop.

As per reports, 43 countries have restricted exports of ferrous scrap while every third of them have banned export of the same. That apart, 71 countries will have barriers on ferrous scrap exports after introduction of changes to the Waste Shipment Regulation in the EU as well as relevant measures in Mexico.