India's ferrous scrap imports to cross record 10 mnt in CY'23. What factors fuelled this trend?

• Turkiye's lack of demand benefits Indian buyers
  
  
• Decent domestic demand, higher production boost scrap imports
  
  
• Competitive imported prices work to Indian mills' advantage
  
  

Morning Brief: India's ferrous scrap imports are set to touch an all-time high of 10 million tonnes (mnt) in 2023 (CY'23), a considerable increase of 40% against 7.70 mnt recorded last year, reveals provisional data maintained with SteelMint.

Containerised cargoes comprise the lion's share of 85% of India's ferrous scrap imports. In CY'23, while bulk imports remained nearly the same, estimated to be around 1.50 mnt by the end of CY'23 against 1.60 mnt in CY'22, containerised volumes rose 51% to 9 mnt from 6 mnt last year.

Grade-wise imports: MS busheling imports surged 129% to 0.19 mnt compared to CY'22 while MS turning volumes were up a hefty 97% to 0.57 mnt.

HMS (Heavy Melting Scrap) remained the top imported category this calendar at 5.02 mnt (up 14%), while MS shredded imports increased 37% to 2.11 mnt. CI scrap also rose 9% to 0.23 mnt, followed by alloy steel at 0.21 mnt, up 46%.

Factors that influenced India's higher scrap procurement in CY'23

Turkiye loses appetite: The world's largest ferrous scrap buyer and market mover Turkiye's imports have been declining since CY'21. For instance, volumes dropped 15% from 24.36 mnt in CY'21 to 20.66 mnt in CY'22 and, till October 2023, hovered at less than 16 mnt. The year may possibly end with an estimated 18 mnt. Turkiye's loss of appetite for scrap lies in geo-political upheavals last year that left Europe in a tizzy in terms of changed trade flows. Skyrocketing gas and energy prices, inflation, a sliding currency, and high-interest rates took a toll on Turkiye's domestic demand. The lira lost heavily against the dollar -- from a level of TRY 5 in 2019 it is languishing at around TRY 29. Crude steel production fell almost 9% over January-October, 2023. With steel demand in Europe declining sharply, Turkiye lost a market for its finished products. These factors obviously blunted its scrap demand.

Tepid demand from other South Asian buyers: Demand from two other key buyers, Bangladesh and Pakistan, was down amid currency slides, high energy prices and weak home demand. This created further scope of diverting material towards India.

In fact, bulk vessels at Indian ports witnessed a rise during July-October due to viable prices and sluggish demand from Turkiye and Bangladesh.

Indian mills' scrap requirements increase: India, on the other hand, was the only bright spot in steel in the last couple of years. Mills showed an appetite for scrap because of decent domestic demand, thanks to the government's infra push. As a result, crude steel production was up y-o-y, which warranted higher scrap imports. In fact, production is expected to close almost 9% higher in CY'23 at around 136 mnt (125 mnt last year).

Price factor: Prices also played a role. Indian mills, sensing the supply glut in the face of lesser demand from Turkiye, extracted good prices from suppliers. Offers for HMS 80:20 of European origin have dropped steadily to $390/t levels, CFR Nhava Sheva, over October-November, 2023 from as high as $580-585/t in April 2022.

In terms of cost, imported scrap was also competitive with domestic scrap, and it offered the advantages of quantity and consistency in quality.

Suppliers keen to offload cheap: Traditional sellers to Turkiye -- the US and UK - were saddled with inventory and wanted to offload material and were forced to lower prices. As a result, data maintained with SteelMint reveals, volumes from the US rose a healthy 41% to 1.88 mnt and from the UK, by 48% to 1.58 mnt.

But, interestingly, under a new dispensation, new suppliers joined India's top 10 list. Two other major sellers to Turkiye -- Poland and Brazil --saw their sales to India surging this year. Poland's volumes spurted 141% to 0.58 mnt and Brazil's to 0.40 mnt, up a whopping 291%. Australia too saw scrap exports to India surging 230% to 0.29 mnt from around 88,000 t in CY'22 while Germany witnessed a sharp 144% increase to 0.23 mnt from 94,734 t in CY'22. Even in the presence of Turkiye, traditional European sellers have begun to hold excess inventory in order to supply Indian mills. India is seen as a significant and long-term buyer.

Domestic collection impacted; prices volatile: GST raids to weed out illegal transactions made it difficult to purchase domestic material with ease, further driving buyers towards imported scrap. Domestic scrap prices were somewhat volatile this year, at times even lower by INR 1,500-2,000/t ($18-24/t) but buyers kept buying from overseas sources. Thus, India's share of imported scrap increased to 37%, compared to 30% in CY'22.

Outlook

India's steel production is expected to increase amid sustained domestic demand as new infra and construction projects come up. This could drive mills to procure scrap in higher volumes, fuelled by a green steel push.

However, it is to be seen whether supply will remain robust in the medium to long term as countries rush to secure their own scrap supplies.

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