India's stainless steel scrap imports drop 15% in H1CY'24. Know why?
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- Higher semis imports lessen reliance on scrap
- Increased freights lead to stress on domestic scrap
- Surging ferro nickel imports may lower scrap dependence
Morning Brief: India's stainless steel (SS) scrap imports saw a notable 15% decline in the first half of calendar 2024 (H1CY'24) settling at 519,780 tonnes (t) against 610,210 t seen in the same period last year.
Significantly, arrivals of the 300 series saw a 24% decline in this period under review to 338,900 t (446,900 t). In terms of grades, the 304 fell 24% and 316 by a hefty 49%. The zurik grade saw a 10% decline, decreasing from 125,300 tons in H1CY'23 to 112,700 tons in H1CY'24. Domestic recyclers separate zurik scrap into 304 scrap and red metals, which are subsequently sold to local producers. Meanwhile, the 430 grade experienced a significant 21% rise, while the 201 grade import remained relatively stable during the same period.
Factors that impacted SS scrap imports in H1
Red Sea crisis disrupts supply, raises freights: The Red Sea crisis which erupted in October 2023, severely disrupted global trade, impacting Suez Canal routes, which handle 30% of container trade. This led to reduced trade volumes in early 2024. Ships need to detour around the Cape of Good Hope which, in turn, raised costs and led to delayed shipments, disrupting supply chains and making low-profit exports unviable. These factors had an impact on stainless steel scrap, particularly those originating in the European and Middle East. Specifically, the Middle East and Europe contributed to about 40% of India's total scrap imports.
Higher semis imports ease scrap reliance: Furthermore, there was a 4% increase in the arrival of the 300 series of semi-finished slab from Indonesia which further eased the reliance on scrap for SS production. Imports of around 50,000 t per month of the 300 series slabs helped domestic mills control costs amid a sustained global commodity price volatility. This shift reduced reliance on imported scrap, boosted flat product output, and likely contributed to the drop in the 300 series scrap imports into India. This factor also possibly kept India's SS production consistent in H1CY'24, which grew a marginal 2% to 1.63 million tonnes (mnt) from 1.59 mnt in H1CY'23. Although longs production dipped negligibly (498,000 t), flats grew 4% y-o-y to 1.14 mnt.
Low finished SS demand drives need-based buying: Indian SS consumption was range-bound in H1 which led mills to opt for need-based procurement of imported scrap, to avoid inventory-build-up. Plus, stable domestic scrap availability and pressure on finished SS prices led to a focus on local sourcing and selective, cost-effective imports.
Preference for domestic scrap amid increased freight: The move toward using domestic scrap has been largely influenced by a sharp rise in global container freight rates, which has notably affected ASEAN countries. India relies on this region for approximately 40% of its scrap imports. Purchasing scrap from Europe and the US is not feasible due to significant price differences. As a result, both imports and exports, particularly of stainless scrap usually shipped in containers, have been significantly impacted.
Nickel volatility, New Caledonia unrest spike offers: In April 2024, LME nickel prices surged to $19,000/t due to sanctions on Russian metals. By May, prices peaked at $21,000/t amid unrest in New Caledonia, leading to increased imported scrap prices.
This spiked imported SS 304 prices by up to $1,500/t, while bids ranged from $1,430-1,450/t, resulting in a significant bid-offer disparity. Meanwhile, SS 316 offers were at $2,680-2,700/t levels while the bids were at $2,630-2,650/t aligning with the drop in imports seen particularly in the 300-series scrap.
Outlook
India's SS scrap imports are likely to trend lower in the short to medium term because of a few reasons. One, ferro-nickel imports in the first half of CY'24 surged by around 64% to 82,766 t. This trend is expected to sustain in the coming months, especially following the removal of the 2.5% duty on ferro-nickel in the Union Budget for FY'25. Elimination of the basic customs duty can lower the production cost of stainless steel mills, for whom 70% of their total costs comprise raw materials. But, since ferro-nickel can be a substitute for scrap its increased imports can reduce scrap arrivals. Two, continued rise in imports of semis such as slabs and blooms from Indonesia can put further downward pressure on imported scrap.
