- Geo-political factors push Turkiye out of market
- Japan’s decarb drive deters scrap exports
- Turkiye may not accept higher offers; Japan may see drop in SE Asian demand
Morning Brief: Turkiye, being the largest ferrous scrap importer in the world, has been influencing global market prices for long. It buys mainly from the US.
On the other hand, Japan, the second-largest scrap exporter, also sets scrap export price benchmarks through its monthly Kanto tender and its exports to Korea, its largest scrap importer.
But the spread between these two benchmark import and export prices have been widening, giving reasons to believe that Turkiye is getting “decoupled” from many of the global markets, especially Japan, SteelMint notes. For instance, as per information available, in 2017, the average gap between FOB prices of H2 scrap exported from Japan to Korea and that of HMS 1&2 imported into Turkiye from the US was about $15/tonne (t). However, in 2022, the spread has widened to about $35/t.
Korea is heavily dependent on sourcing from Japan because the latter sells high-grade, mainly automotive grade scrap, much in demand in the former. But, Turkiye follows the middle path and can do with lower grades, for which the US is an ideal supply source.
Why are Turkiye’s scrap import prices decoupling from rest of the world?
Gradually, the Japan and Turkiye scrap markets have become bifurcated with each country influenced by its own set of factors.
Geo-political factors: Of late, Turkiye has been out of the market in a spin-off of the geo-political events. Its crude steel demand dropped due to the Russia-Ukraine war. It used to supply considerable amount of steel to Europe before the war began. However, since the war outbreak, it has been beset by high energy prices and lack of demand from the EU which forced its mills to lower crude steel output, resulting in drop in ferrous scrap demand. It became conspicuous by its absence from the import market. US suppliers, saddled with inventory, sold their bulk material cheap to India. In October, Turkiye showed a flicker of activity but became silent yet again. US suppliers, sensing an opportunity, offering higher prices but it remains to be seen if Turkey will accept these elevated offers.
Japan, on its part, has been fairly insulated from the energy crisis, which is predominantly a European phenomenon at present. Post-April, its export prices started falling due to tepid demand from Southeast Asia but have been rising lately propelled by restocking demand from this geography.
Japan’s decarbonisation drive: A key reason is Japan’s growing stress on greener steel-making methods using ferrous scrap. The country’s leading steelmakers have laid out a roadmap till 2030 for developing technology for manufacturing high quality steel using hydrogen and electric arc furnaces. But Japan faces finite supply of scrap. If the scrap that is currently exported is directed towards domestic use, then Japan could meet two-third of its current demand, as per a source. Data, from the period maintained by SteelMint, reveals that Japan’s export prices have been rising since the last few years, a pointer to the fact that it was deterring exports. Prices of Japanese H2, FOB Tokyo Bay, rose sharply in February to JPY56,000/t ($387/t) from JPY 50,250/t ($348/t) in January, touched a peak of JPY 65,700/t ($454/t) in April but dropped off since then.
Kanto influence on SE Asia: Southeast Asian markets like Korea, Vietnam, Taiwan and others started increasingly sourcing from Japan where it gradually became a price influencer through is Kanto monthly tenders because of its supply of high-grade material. On the other hand, Turkiye’s import prices became a benchmark for South Asian buyers like India, Pakistan and Bangladesh (though the latter does also buy from Japan), possibly because of similar preferences.
Turkiye’s US-origin melting scrap import prices peaked in March to $633/t CNF Iskenderum but dropped off to show an uptick in October.
Covid impact: Additionally, Covid-19 also impacted transportation, freight rates, container shortages etc. The market took two years to overcome the situation but not before pushing up Turkiye’s import prices because of the container shortage in the US.
Outlook
Although Turkiye and Japan seem to have become decoupled from there respective markets, SteelMint understands that both may see a decline in prices in the short to medium term because of their own respective reasons. Turkiye may continue to remain inactive amid high energy prices while Japan may see a drop in Southeast Asian demand.
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