India's ferrous scrap imports projected to drop 25% y-o-y in 2024 - BigMint analysis

• Scrap imports may fall to around 8.3 mnt from over 11 mnt in CY'23
  
  
• Share of domestic supply in total scrap consumption edges up
  
  
• Higher domestic demand for DRI impacts scrap imports
  
  

Morning Brief: India's ferrous scrap imports are projected to fall by 25% in calendar year 2024 (CY'24) to around 8.3 million tonnes in comparison with 11.03 mnt in CY'23, as per provisional data available with BigMint.

Imports are projected to edge down despite the fact that India's consumption of scrap increased by 10% y-o-y, reaching 34.19 mnt in CY'24 compared to 31.19 mnt in the preceding year. This was due to a solid 6% growth in domestic crude steel production in January-November 2024, which reached around 136 mnt, according to the World Steel Association (WSA).

The growth in scrap consumption was mainly driven by the uptick in domestic scrap usage, which increased by around 33% y-o-y to nearly 26 mnt in CY'24 as against 19.51 mnt last year.

Factors affecting scrap imports

Buyers favour domestic scrap: Buyers favoured domestic scrap due to its easy availability and cost-effectiveness. For example, imported European HMS 80:20 scrap was, on average, INR 1,600/t costlier than domestic scrap during CY'24. Government policies are boosting recycling efforts and scrap generation, although supply falls short of actual demand.

Rise in DRI consumption: In CY'24, sponge iron (an iron metallic which is an alternative to scrap in India's electric-route steel production) demand witnessed an uptick of 9% reaching 53.66 mnt in comparison with 49.36 mnt in CY'23, BigMint data shows. Sponge iron production data reflects steady growth: from 43 mnt in FY'23 to 51.5 mnt in FY'24.

Wide availability of domestic iron ore and thermal coal, lower production costs and higher margins thanks to comparatively cheaper coal, as well as the additional power generation capacity of sponge iron plants through recovery of waste heat from rotary kilns account for the fact that it is a competing raw material and can replace scrap as a feedstock in domestic IF-based steel production because of easier availability and comparatively lower prices.

Geopolitical disruptions: The Red Sea crisis, which erupted in end-2023, peaked by January 2024, with up to 90% of container vessels on the route getting affected. Route diversions resulted in longer lead times, higher freight and fuel costs which affected global trade and India's imports were directly affected. In addition, port delays and congestion impacted imports. The share of imports dwindled in total consumption from February onwards even as domestic scrap usage edged higher.

Restrictions on scrap exports: Scrap is a precious resource in the global steel industry today which is steadily towards reducing carbon emissions in production. Therefore, national governments are naturally motivated to restrict exports to conserve scrap for domestic use. Several countries are clamping down on exports, especially in Africa, the MENA region, Asia as well as Europe.

A study conducted last year showed that more than 60 countries have either put an embargo on exports or are in the process of imposing some form of restriction. Major scrap exporting regions such as the EU and Australia are pitching for policy tightening to regulate exports. This trend is expected to become more prominent going forward.

Outlook

BigMint forecasts scrap imports in FY'25 to drop around 30% on the year to approximately 7 mnt compared to 10 mnt in the previous fiscal alongside growth in domestic supplies of around 7% y-o-y to reach approximately 31 mnt. Although cost considerations currently favour DRI over scrap, the efforts of domestic steel producers to lower carbon emission levels will keep demand for scrap elevated in the mid- to long run. While domestic scrap generation is rising, it may not meet the growing demand, potentially creating a 12-15 mnt annual deficit.

Therefore, as restrictions on scrap exports in different countries become more severe, they are likely to pose a formidable challenge for domestic steel producers.