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Uneven Trade

International Recycling News

Global trade volumes of ferrous scrap have been mostly disappointing, and market analysts appear to be preparing for a long ride.

Lisa McKenna September 30, 2013

With the exception of steel mills in Turkey, ferrous scrap buying in markets around the world has been unexpectedly lackluster over the summer months of 2013, industry insiders say.

For the first half of 2013, exports of ferrous scrap from the U.S. were down about 12% from the same period last year, according to figures from the U.S. Census Bureau.

However, Turkey, which is by far the largest consumer of ferrous scrap worldwide, has ordered respectable volumes of ferrous scrap during the months of July and August, as reported by American Metal Market (www.amm.com) in a mid-August news story.

Meanwhile, scrap flow volumes to other regions have been weak, for a variety of reasons, and industry insiders don’t appear to expect an upturn anytime soon.

CURRENCY BLIPS

Overall, ferrous markets in recent weeks have been volatile, says Kevin Wong, a consultant with the international steel consultancy group MEPS, based in Sheffield, U.K.

Some of the seemingly erratic swings witnessed from month to month, Wong says, have likely been based on currency and exchange rate fluctuations. For instance, the Indian rupee lost value to the U.S. dollar over the summer months, gradually declining about 10% from the beginning of June to mid-August. The decline occurred despite the Reserve Bank of India’s recent efforts to tighten monetary policy. Its value fell by 2.6% over the last month, “which is a big shift for one month,” says Wong.

U.S. exports of scrap to India also have been weak compared with last year—down by about 40% according to U.S. Census Bureau figures. For more on India’s basic materials industries, see “Low Gear,” beginning on page 30 of this issue.

Meanwhile some countries’ currencies, such as South Korea and Japan, were mostly stable over the last couple of months. China, another major buyer of ferrous scrap from the U.S., realised a slight strengthening of its currency against the U.S. dollar in recent months. Wong characterised trade flows to China as decent.

While the recent decline in trade volumes is not nearly as bad as what was experienced following the market crash of 2009, consumption volumes in many regions still are disappointing, Wong says.

PRICE SURGE
Christophe Blumenzak with the France-based processing company GDE Recyclage and its parent company, Ecore Group, says ferrous scrap trading in Europe has been very slow in mid-to-late August in light of the summer holiday, though he adds that prices were “not bad at all.”

He says business has been slow in light of economic troubles worldwide and a slowdown in Chinese growth. However he adds that production and volumes have improved somewhat in recent weeks. Still, he was preparing for the possibility that market difficulties could continue heading into 2014.

“The economic situation for this year is difficult and for us it will be difficult for the next year too, because we are very prudent of the market,” Blumenzak says.

Blumenzak indicates that demand among Turkish mills for ferrous scrap in September has increased.
According to a news item from AMM published in mid-August, Turkish mills have ordered about 3 million tonnes of ferrous scrap since the beginning of July that is scheduled to arrive by the end of August or mid-September. The publication also reports that 10 of the loads were booked in the first half of August. Three loads were procured from exporters located on the East Coast of the United States, according to AMM. The high level of shipments to Turkey kept prices elevated, the AMM adds.

The U.S. is a top supplier of ferrous scrap to Turkey, which is the highest-volume scrap export destination in the world. Figures from the U.S. Census Bureau and the U.S. International Trade Commission demonstrate that the U.S. is also the world’s largest exporter of ferrous scrap—exporting around 23 million tonnes in 2012, mainly to Turkey, South Korea, Taiwan, Canada and China.

In 2012 the U.S. exported 6.4 million tonnes of iron and steel scrap to Turkey, according to figures from the U.S. Census Bureau and the U.S. Geological Survey. This year the U.S. exported about 2.7 million tonnes to Turkey between January and June.

U.S. exports of ferrous scrap to South Korea were also down about 40%, to a level of about 1.07 million tonnes for the first half of 2013 compared with 2012, according to U.S. Census Bureau data.

Wong says, over the last month prices in Turkey for No. 1 and No. 2 grades of heavy melting scrap (HMS 80/20) have rebounded significantly. “We had a 7.5% increase,” he says, noting that it was likely based on metal shortages and a rebound in the U.S. market. “Exporters are raising their prices,” Wong says. Part of the increase, he notes, was likely caused by freight increases and recent labor strikes in Turkey that led to further inventory reductions.

“There’s been a rebound in scrap prices in the U.S.,” says Wong, noting that Turkish producers traditionally source their ferrous scrap from the U.S. and Europe, though they will substitute those grades with A3 scrap, a regional heavy-melt scrap grade from countries that are part of the Commonwealth of Independent States (CIS), if necessary. However Wong adds that freight rates from Russia also have increased, as did the price of A3 scrap.
Wong says inventories at Turkish mills have been low because of a series of labor union strikes at MMK Metalurji, the Turkish subsidiary of Russia’s MMK, and at Isdemir, a subsidiary of the Turkish mill Erdemir. The strikes lasted for about two weeks, ending in early August.

“Because of the strike action, a lot of prices went up,” says Wong. “Exporters to Turkey raised their prices.” He says the price increases occurred because of either real or perceived shortages of material resulting from the strike option.

Scrap prices in China also have risen over the last month, as producers there have been replenishing inventories. “A lot of the pickup is mostly in China. India is still subdued, Taiwan isn’t great, and there’s been only a little bit of improvement in South Korea,” Wong says.

Among finished products, Wong says the demand for long products remains weak in many Asian countries, in light of lacklustre or seasonally slow construction activity. Additionally, tightened credit in many areas has put a damper on some purchasing, and some buyers are reticent to lock capital into inventory, he says.

OUTSIDE FORCES
Wong says seasonal weather patterns also are playing a role in ferrous scrap flows, as they typically do this time of year. One key factor that has affected flows of scrap to India has been the monsoon season, the rainy season that typically lasts from June through September. Demand is seasonally down during this period, and that is certainly the case this year, Wong says, describing this year’s seasonal rains in India as “appalling.”


He says, “The secondary producers aren’t producing much raw material.” Wong describes the production of long products at Indian mills as “subdued” and flat products as more stable, though he says steel prices have fallen significantly over the last month among Indian buyers.


Wong says India at the moment is not purchasing much because of monsoon season, and festivals in Brazil have dampened purchasing in that market, which is running on minimal inventory.
Wong characterises procurement volumes of scrap from Turkish mills as “sporadic,” partly in light of the end of Ramadan in early August. Industry analysts say they had hoped for a bounce in trading volumes to occur following the month-long observance of the Islamic holiday.

In Asia, Wong says ferrous scrap import prices have risen almost 3% compared with last month’s prices for HMS 1 and 2 grades. U.S. exporters also have raised prices based on strength in the domestic market for ferrous scrap.
In India, “people have been dropping prices and running low production rates,” Wong says. “A lot of the secondary producers are at around 50%,” he adds.

He says China’s strongest month is typically September; however, analysts are divided on whether a seasonal bounce will occur then.

“People have been stocking in anticipation of the bounce,” Wong says, “but a lot of people do not think there will be a significant bounce because of overcapacity. There is too much material flowing around.”

Wong notes that in light of the reduced volumes in recent months, some traders have even held “fire sales” to reduce inventory. “Some in the run-up to the rainy season in China were disposing of inventory at lower than purchase costs,” he says. It is a scenario that can happen typically prior to seasonally slow periods, such as Christmas.

Wong says another problem in China is a lack of working capital, as banks are being instructed to cut back on lending.

On that point, Blumenzak says, traders and suppliers of scrap need to be aware of the financial risks and payment terms sought by customers, particularly in this environment of tightened credit in many regions, particularly China and India.

Wong says operating margins aren’t favorable at the moment either, particularly with rising transportation, labor and handling costs eating up any gains.

Analysts report they are not expecting much of a rebound to occur before next year, if the holiday season puts its usual damper on November procurements.

The article first appeared in the September/October 2013 issue of Recycling Today Global Edition.

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