Turkiye imported ferrous scrap prices decouple from Asian offers. Know why?

• Geo-political factors hike freight rates
  
  
• India, Pak more or less out of scrap buying market
  
  
• Bangladesh emerging as major buyer amid demand recovery
  
  

Morning Brief: It seems Turkiye, the largest ferrous scrap importer, is no longer driving prices in this domain. Its prices were traditionally followed by the three heavyweight importers -- India, Pakistan and Bangladesh. Data maintained with BigMint reveals that Turkiye has increasingly become decoupled from South Asian scrap buyers while Bangladesh is emerging as a driving force.

Price trends

Bulk scrap import price data seen over the past six months reveal that prior to December 2023, India and Pakistan paid $25-30/tonne (CFR west coast of India and CFR Qasim respectively) higher compared to Turkiye. Bangladesh paid an even higher premium of $30-35/t. For instance, over August-December, 2023 when Turkiye paid an average $387/t CFR Iskenderun for US-origin HMS 80:20, India paid $30/t higher at $417/t CFR west coast for shredded from the EU. Pakistan coughed up $37/t extra at $424/t while Bangladesh paid a steep premium of $48/t when pitted against Turkiye.

Post-December 2023, however, the scenario changed slightly.

In Bangladesh, the premium over the Turkish benchmark significantly decreased by $5-10/t CFR. This drop can be attributed to the freight rate hike, which increased the cost of imported scrap, making these unviable for buyers here especially since finished steel demand is very dull, reducing the need for scrap metal.

India's prices fell even further, with inquiries declining by $15/t and bids by $20/t compared to Turkish levels, again due to bleak steel demand and steep freights.

Factors behind the decoupling

The decoupling indicates that each market is increasingly influenced by its own dynamics and resorting to need-based buying, amid lower demand and exports.

Turkiye swayed by own market dynamics: Turkiye's crude steel production in CY'23 witnessed a 4% drop to 34 mnt as against 35 mnt in CY'22 owing to dull finished steel demand amid a weaker lira, high inflation and interest rates that impacted domestic purchasing power. The lira eroded 33% and inflation was at 64% in 2023. Its export market also witnessed a sluggish year due to weaker currencies and sea route disruptions because of the Israel-Hamas wars.

High energy prices, followed by high interest rates to quell the same and lack of demand from the EU forced Turkish mills to lower crude steel output and in tandem scrap buying. Imported scrap volumes declined marginally in H2'CY23 to 9.19 mnt as against 9.63 mnt in H1.

Imported scrap prices in January 2023 had hit a one-year low at $412/t CFR compared to January 2024's $421/t.

Geo-political impact: The Red Sea incident (which erupted on 19 October, 2023) hiked freight rates as ships had to detour. This led to longer voyages, supply chain disruptions and extra security charges for vessels, impacting freight rates upwards. Bulk scrap prices into Turkiye witnessed a 16% increase in January 2024 at $421/t compared to the $362/t levels in October 2023.

On the other hand, in South Asian countries like India, Pakistan and Bangladesh, the container scrap market witnessed a dull phase amid weak finished steel demand. Suppliers were uncertain of clinching lucrative deals amid higher freight charges and sluggish response/inquiries.

Enquiries from Europe and routes via the Red Sea dropped significantly, which made South Asian buyers worried about their future bookings of EU-origin material.

Red Sea crisis makes offers unviable for Bangla buyers: Bangladeshi buyers were paying up to $30-35/t over the Turkish prices prior to the freight rate hike. However, post-the Yemen/Red Sea crisis, freights increased $15-20/t for bulk and containers, which made prices unviable and forced them to move over to sourcing from alternate markets like Australia, Singapore, Hong Kong, Malaysia, and the Middle East.

Bangladesh emerges as major buyer: Since the last two months, India has been out of the market due to low scrap demand and availability of cheaper domestic material. Pakistan is already nursing low volumes and has shown wild swings, amid political unrest, dull steel demand and higher raw material prices. That has left Bangladesh as the major buyer at present. It's offers are often influenced by the scrap buying prices of Indonesia, Vietnam and Taiwan. However, these three Southeast Asian countries have also exited the market at present because of slack finished steel demand. Buyer interest and booking patterns from new origins like Australia, Singapore, and Malaysia are driving current pricing trends in Bangladesh.

Indian buyers prefer domestic scrap: Indian buyers stayed away from the imported scrap market because it was more expensive compared to domestic. The price gap between imported and domestic widened from INR 185/t ($2/t) in August to INR 2,885/t ($35/t) in January 2024.

This was mainly because domestic generation and collection improved last year while issues related to the goods & services tax (GST) were also smoothened out at local market levels.

Thus, Indian buyers were not willing to pay higher. Their prices averaged $417/t CFR west coast in August-December 2023 compared to Pakistan's $424/t CFR and Bangladesh's $435/t CFR.

Looking ahead

Bangladeshi scrap importers foresee a slight correction in offers, driven by improved market sentiments and ample scrap supply. Bulk deals are anticipated, fuelled by expectations of increased infrastructure spending and improved LC availability. While a slower start is predicted in the first quarter of CY'24, the steel sector is expected to gain momentum by end-March. This may allow Bangladesh to drive scrap price trends, looking ahead.

With no major demand signals emerging from the Indian market, suppliers are hesitating to ship to India, which is resulting in a dry pipeline for February and March. If domestic demand picks up, shortages may arise over February-March and potentially increase prices.

While some buyers from the south have hazarded $405-410/t levels, there have been no commitments from the West Coast. Volumes into India are expected to remain lower over January-February compared to December 2023.

In Pakistan, the limited availability of raw materials, elections, and constrained funds flow will add to the uncertainty. Market activities will hinge on election results and viable offers.

Both the Turkish lira depreciation and inflation have worsened significantly in 2024 compared to 2023. The former having depreciated 77% so far in 2024, while inflation has risen around 24% in January y-o-y. These trends will put significant pressure on the Turkish economy.

Looking ahead, the decoupling trend has a strong possibility of sustaining over the medium-to-long term.