Ferrous Scrap

Russia and CIS - Andrey Balashov, TYOR Commercial Inc.
Italy, Europe - Dr. Laila Matta, Trans Commodities Italia SRL

FERROUS SCRAP>>RUSSIA AND CIS>> Andrey Balashov, TYOR Commercial Inc.

As of mid-January, the situation in Russia is stabilized. Almost all the mills have a normal working stock level at the moment. On average they have stocks for one and half months of working at full capacity.

The price level in northern Russia is about $280 per metric ton delivered to the mill for #1 grade heavy melting scrap. Prices are continuing to rise. We expect further growth until the $300 price level. The first part of January was a long holiday in Russia, so collection level figures are not representative of what is going on.

Prices in southern Russia are at the $270 per metric ton level. We expect further growth up to the $285 to $290 level.

Payments from the mills are very good right now, with 10-day delays.

Export out of Russia is experiencing difficult times again since custom authorities are imposing a new [benchmark] level of price for calculating the export duty. Custom authorities are putting the minimum possible level for export at $360 freight on board. Basically this means that exporters have to pay $54 per metric ton export duty instead of $27 per metric ton (as it was in December 2009).

The ice situation is very complicated in Russian ports. Exporters are not able to ship old contracts due to absence of vessels with proper ice class. Freight rates are increasing rapidly. We expect some contracts concluded in 2009 to be canceled by Russian suppliers.

Andrey Balashov of TYOR Commercial can be contacted at scrap@tyor.ru.

FERROUS SCRAP>>ITALY, EUROPE>> Dr. Laila Matta, Trans Commodities Italia SRL

The trend on prices is still positive and the scrap market remains strong. In early February, prices are more or less at the same level that we had in January. The expectation for February is that prices will remain at the January level, not only in Italy, but also in Germany, France and Luxemborg. The availability of imported scrap is practically zero. This fact will allow the local scrap dealers to have a strong position toward the steel mills.

We have a temporary reduction of €10, which was announced during the first week of February and has been applied to the industrial demolition scrap and also to shredded qualities. But we don’t think that €10 less will be definitely confirmed in the next days/weeks, as the scrap dealers declared to be almost 100% sure to recover the decrease already this month.

The offers from the U.K. are too high to be accepted on the Italian market. We were reported shredded offers at about €225 FOB (freight on board) from the United Kingdom, which means €265 (Cost, insurance and freight) at the Italian port. This level is unachievable for the time being.

Turkish markets for scrap remain attractive for sellers, despite a slight decrease. The billets market has softened a little bit: we had a peak at €500 but we are already back at €480 and still there are no buyers (in Italy).

The demand for finished products is extremely weak and this makes everyone extremely worried because we have the raw materials going up. Actually we had a further increase at the beginning of February on pig iron, while scrap prices remain substantially the same, being already on the high side.

The main sale market for debar (rebar) and wire rods is still North Africa, I would say mainly Algeria. But the Algerians have not come back so far with bids for new purchases. So nobody knows whether the increase asked by the debar producers will be accepted in the end. Few sales were already concluded with traders at €380/385 FOB at the Italian port, who apparently have not yet sold these parcels. Spaniards are still offering cargoes at €360 FOB

There are steel mills already aiming at a further increase of debar price (€400/410 Fob) as, at the present level of €380/390, they seem to not yet cover the production costs, being that the billets price level is at around €340.

Unfortunately we don’t see the demand for finished products in general (long as well as flat products) going up for the time being. As already pointed out, in January we are facing a difficult period where on one side we have the raw materials moving up steadily, or at least holding at a certain level, while on the other hand, the finished products are still not following the same trend/pace.

There is one thing that, in my opinion, is not so negative: we were announced of production stops for a couple of weeks, which in the end have not been confirmed. The steel mills are just slowing down the production. This means that everybody is trying to go ahead, hoping that in the next quarter, I would say starting from the second half of March or April onward, the demand should be recovered, enabling the steel producers to go for higher prices on finished products.

Right now, the market in Italy seems to be worse than in Spain. We are hearing the same story: Spaniards buy scrap at a higher price (€240) than Italians, but they still offer debar at a lower level (€360 FOB). How can this be? Spaniards are always on the market offering material, while the Italians are not. Spaniards keep on producing while Italians slow down or even stop production and buying. We wonder for how long can Spain go on this way?

Definitely the Italians have a different approach. They do not accept to go on producing if they are losing money. They prefer to stop or slow down production, or ask the government for help by laying off the workers temporarily.

Suppliers are holding quite a firm position on price. Only a few dollars/euros can be negotiated. Offers are made with a very short timeframe to decide. If a customer is late in answering, in most cases the quantity is no longer available, having been sold elsewhere. The offerers seem not to care much about the European market, or are not so keen on waiting for the Europeans to react. There are other markets where the demand is stronger and prices are accepted without long discussion.

Also the dollar strengthening against the euro is affecting the business in the European countries, though I still believe that a strong dollar makes the Europeans more competitive in the medium/long term. If the American economy flies, Europe will benefit as well, while what is going on elsewhere (China and India) seems not to have a big influence on our markets. Indeed, the European countries’ economies are still very much influenced by the U.S. market.

Dr. Matta can be contacted at lmatta@tcmilano.it.