- Turkey plagued by steel output drop, lower scrap imports, export market loss
- Japan’s scrap exports rise amid yen slide but may fall in future
- Offers may touch $450-500/t levels in next two months
- Scrap availability to be under pressure in future
Morning Brief: South Asia is set to become the leading scrap importer in the near future. Speaking at a panel discussion on ‘Impact of Recent Bulk Supply in Indian Scrap Market’, at SteelMint’s Engage webinar series, Vaidhyanathan R.S., CEO and Director, Shakti Steel Industries, and Ritesh Maheshwari, Executive Director, Shabro Metallic Pvt Ltd, agreed that India, Bangladesh and Pakistan will be the front-running bulk scrap importers going into the future.
“I foresee that both India and Bangladesh are keen to import bulk. Bangladesh’s imports in bulk have gone up 74% this year; this is interesting. In India, 200,000 tonnes of bulk arrived in September and 335,000 tonnes in October. These are substantial figures as far as bulk scrap import is concerned,” said Vaidhyanathan.
Echoing him, Maheshwari said India, Bangladesh and Pakistan “will be at an advantageous position because of the growth in their steel production — both greenfield and brownfield”.
“If India wants to achieve its future steel production targets, it has to continue importing scrap. Thus, the nation is going to be one of the major consumers of scrap from now on, that is for sure!” Maheshwari predicted, adding, ultimately, bulk scrap will flow to where the prices will take them.
On the current LC issue which has put pressure on Bangladesh and Pakistan, Vaidhyanathan said that he expects the former to bounce back from this situation. “Bangladesh is taking pre-emptive measures for the LC issue. The nation has got $40 billion of foreign currency reserves. Soon, it will be able to normalize this situation. On the other hand, Pakistan, which is reeling under the pressure of high inflation, may not bounce back. The inflation figure in Pakistan is estimated to rise from 12% to 18% in 2023! With only $8 billion of foreign reserves, the trade deficit has escalated. Moreover, Pakistan’s currency has hit PKR 221 from 162.9 against per dollar, last year. Hence, importing anything will be difficult for the nation in 2023,” he further said.
Vaidhyanathan added that bulk volumes are flowing to Chennai because almost 60% of India’s auto hub is located in this city.
Bulk versus container: Attention has shifted to bulk because of its price advantage but the market for containers is still there, informed Maheshwari. “The inherent demand of containers cannot be ignored and that is why such cargoes have also come in apart from bulk,” he observed. However, the volume of bulk bookings is more compared to containers.
Currency slide: On the issue of currency volatility due to dollar’s continuous rise, he said it is always better to hedge the currency over the premium to the bank.
“It is worth paying the premium to mitigate the risk. Moreover, a buyer can join a consortium and book periodically to hedge risks,” Vaidhyanathan suggested.
Scrappage policy booster: He added that scrap consumption in India will increase on the back of the government’s vehicle scrappage policy.
At a time when the Indian government is putting a thrust on low carbon steel-making, green steel and increasing crude steel production, the emphasis on scrap will reach new heights in near future,” Maheshwari remarked.
Why is Turkey losing its numero uno position?
Turkey has been the numero uno in scrap all these years but now it has started to lose its ground “which we can say is a change in the world order!” remarked Vaidhyanathan. “We have never seen such scenarios before. The Russia-Ukraine war and the depreciating lira together have caused a very weak domestic market in Turkey,” he observed.
“Turkey’s steel production dropped 20% this year. Moreover, the nation saw 40% reduction in its scrap imports. Turkey has also started losing its prominent export markets. For rebars, the nation has lost significant ground to Singapore and Malaysia. Even in billets, cheap Russian material have been pumped into Turkey’s export markets. We all know that due to sanctions, Russia is unable to do business with other nations. But it is opting for indirect routes. Naturally, there is huge scope for India and Bangladesh to seize this opportunity,” Vaidhyanathan commented.
Turkey’s mills, in comparison to South Asian counterparts, have not seen such growth or expansion plans,” Maheshwari pointed out.
Maheshwari added that the last six months have been surprising! Nobody could have thought in January 2022 that the international market of scrap will behave in this fashion. The industry is globally inter-connected where factors like geo-political developments, local demand-supply scenarios, relations between buyer and seller nations, ocean trades – in both bulk and container –will weigh in and play a huge role in deciding the overall outlook of the market.
Japan’s ferrous scrap conundrum
In Japan, July saw a softening in scrap prices. Japanese export data revealed 15-20% decline in Vietnam, Taiwan and China’s share. However, by September, a large upward jump had already taken place amid the currency slide.
This reiterates that Japanese scrap is flowing out. It is not that Korea and Vietnam are not buying — the overall production is low because of lower domestic demand of steel in Japan. In addition, the yen comes just after lira in terms of currency depreciation to the dollar.
“Industry activity has slowed down in Japan. There has been a noticeable drop in vehicle sales too. These factors will come into play and eventually scrap generation will come down in Japan. Local mills have also been asked to use scrap — this is going to create a scarcity in the material,” elaborated Maheshwari.
“Japan is mulling increase in its electric arc furnace (EAF) capacity from the current 25%. At present, it exports around 8 mnt of scrap. Due to the expansion plans in EAF, Japan’s exports may come down. The nation may use more scrap for its local consumption,” observed Vaidhyanathan.
Outlook
Looking at the probable price trends in scrap in the near term, Maheshwari said that offers may reach $ 450-500/t levels in the next two months. In fact, by March 2023, prices may hit $ 500/t!
He said that, at present, scrap prices are under pressure mainly due to the overall negative sentiments. In addition, China is flooding South Asian countries with steel. “However, if things improve, scrap prices should get sufficient support and reach above levels,” he concluded, adding that scrap is a dynamic commodity for which it is difficult to come up with a long-term prediction.
However, scrap supply will be limited and lead to scarcity. “Due to the current geopolitical tension, many nations, the UAE for instance, have banned exports of scrap till 2023. South Africa is coming up with export duties. Due to these restrictions, scrap scarcity will be evident in the near term and market volatility will continue over the next few months,” Vaidhyanathan informed.
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