India's scrap imports decline over 25% in H1CY'24. Short term may remain dull

• Domestic sources remained cost effective compared to imports
  
  
• Red Sea crisis raises freights, logistics costs
  
  
• Turkiye, Bangladesh look more attractive to sellers
  
  

Morning Brief: India's ferrous scrap imports declined by 26% in the first half of calendar 2024 (H1CY'24) to around 4 million tonnes (mnt) against 5 mnt recorded in the same period in CY'23, reveals data maintained with BigMint.

Data also showed, the most imported commodity was HMS at 2 mnt in H1, marking a drop of 22% as against 3 mnt seen in the same period last year. Shredded followed at 0.69 mnt (down 40% y-o-y), while light melting scrap (LMS) was down 30% y-o-y at 0.35 mnt. Turning-boring was at 0.23 mnt, down 15% in this period.

Scrap consumption up

During the period under review, India's scrap consumption stood at 18 mnt, up 16% compared to 15 mnt recorded in same period last year. Out of this, 78% comprised domestic scrap at 14 mnt (48% higher compared to H1CY'23), and the balance 4 mnt was imported (but down 26% y-o-y).

Reasons behind fall in imports

Availability of cost-effective domestic scrap: A key reason that dragged down imports in H1 was the availability of comparatively higher and cheaper domestic scrap. Domestic HMS 80:20 was lower by INR 2,000-4,000/t ($24-48/t) in H1CY'24, compared to imported offers from the UK/Europe. For instance, in January 2024, domestic HMS 80:20 was priced at around INR 33,000/t ($394/t) DAP Jalna, while the imported material from the UK/Europe was at $417/t CFR Nhava Sheva, which translated into INR 37,600/t ($449/t), including INR 3,000/t ($36/t) (inland freight and port clearance charges) to Jalna. This made domestic scrap cheaper by around INR 4,600/t ($36/t). Similarly, in June 2024, a gap of around INR 2,200/t ($26/t) was observed between domestic HMS 80:20 and imported, resulting in a further shift in demand for domestic scrap.

Drop in bulk scrap bookings: In H1, around 0.23 mnt was imported in bulk - marking a significant 73% drop as against 0.85 mnt seen in same period last year. The drop in bulk bookings was attributed to low demand in India owing to a slowdown in domestic steel demand amid the elections in April, the run-up to the Union Budget, and the monsoon season. Additionally, suppliers preferred to serve markets such as Turkiye and Bangladesh which were willing to accept higher export offers.

In fact, with the economies in Turkiye and Bangladesh improving after a few years of poor performance, their scrap intake is set to rise. Since their steel-making is solely dependent on scrap, they would be willing to pay higher to secure cargoes, much to the delight of suppliers who would not mind missing the Indian bus.

Bangladesh's scrap import volumes are already up 14% y-o-y over January-June 2024 at nearly 1.50 mnt.

Red Sea crisis impact: The Red Sea crisis, which erupted in October last year, significantly impacted Indian buying pattern by disrupting logistics and increasing transportation costs. Container freight rates from the UK to the west coast of India surged from $975-1,000/t to $2,000-2,100/t within a week of the onset of the crisis. Despite stabilizing at $1,550-$1,600/t later, these were still over 60% higher compared to the pre-crisis levels. This escalation drove up the cost, insurance, and freight (CIF) from 10% to approximately 17%. Bulk freight from the UK/EU to the Indian subcontinent increased by 45% after the crisis erupted to $66-$70/t from $45-$48/t.

In contrast, container freight rates from the US to the west coast of India remained much lower at $450-$500/t, post-crisis.

The crisis also extended voyage times for containerised cargo from Europe to the west coast of India from 22-25 days to 50-60 days due to re-routing via the Cape of Good Hope. This delay affected the quality of certain grades, such as turning and boring, and required steel mills to engage in longer cycle planning for financial and raw material resource optimisation. Consequently, advance planning for vessel/container arrivals has become crucial, necessitating higher capital deployment.

Higher sponge iron production: India's sponge iron production has been showing a steady increase. From 23.50 mnt in H1CY'23, it climbed up 13% to 27 mnt in H1CY'24 and is expected to sustain the uptrend in FY'25. The reasons lie in the higher margins, lower production costs thanks to the comparatively cheaper coal and the bonus is the additional power these units are able to generate through the waste heat recovery process. Sponge iron is a competing raw material and can replace scrap as a feed because of the above factors.

Restrictions on ferrous scrap exports: As countries move towards their respective emission goals, it is imperative for them to preserve the scrap generated domestically for their own use. Thus, several are clamping down on scrap exports, especially in regions like Africa, MENA, Asia and Europe. As of the middle of last calendar, more than 60 countries have either put limitations on scrap exports or are in the process of doing so.

Outlook

The slowness seen in the market may sustain in the short term. The disparity of INR 3,000-4,000/t ($36-48/t) between domestic and imported prices may sustain for some more time as buyers are showing little interest in imports because of the monsoon and low steel consumption.

Looking at the long term, scrap usage in steel-making in particular is expected to drop to 31 mnt in FY'25 from around 34 mnt in FY'24. However, by 2030, 35-40% of India's 300 mnt steel production is expected to come from the electric furnace routes and this would entail higher scrap intake. Keeping decarbonisation goals in mind, many primary mills are also ramping up scrap intake.