Lowered expectations

Global ferrous scrap markets continue to struggle as they deal with what has been described as a worldwide glut of finished steel products.

In light of that oversupply, steelmakers have continued to cut back production. The Brussels-based World Steel Association (Worldsteel) reported in December that world crude steel production for the 66 countries reporting to the association was 127 million tonnes in November 2015, a 4.1% decrease compared with November 2014.

The largest producer of crude steel, China, reported a production figure of 63.3 million tonnes for November 2015, a decrease of 1.6% compared with November 2014.

Major scrap importer Turkey’s crude steel production for November 2015 was 2.6 million tonnes, decreasing 7.2% relative to production in November 2014.

SUPPLY ISSUES

One of the major factors being scrutinised by ferrous scrap traders and major steel industry associations appears to be an excess of steel exports from China finding homes in Europe, the United States, Turkey and other locales.

Marvin Bender, a spokesperson for the Stahl-Zentrum (Steel Center) in Dusseldorf, Germany, writes in a December blog post that by the end of 2015, 7 million short tons of steel are expected to have been imported into the European Union from China. This steel, he writes, also represents production that is significantly higher in carbon dioxide emissions than that of Europe’s by nearly 4.2 million tonnes, according to figures from the German Steel Federation (WV Stahl) and the Düsseldorf-based Steel Institute (Stahlinstitut VDEh).

In a separate Steel Center blog post, Roderik Hoemann and Dr. Martin Theuringer of the German Steel Federation write that steel imports from China into the European Union have risen by 130% during the last three years.

“The end of this trend is not in sight,” the authors write, “because the Chinese market has passed its saturation point.”

Commenting on the German steel scrap markets, Germany’s BVSE, the Federal Association for Secondary Raw Materials and Disposal, in its December market report indicates that while scrap availability differed greatly across the country, it generally seemed to be in short supply. In addition, a high level of Turkish demand for scrap in November caused German and other European mills “to keep their offered prices in line with export prices in order to procure the necessary quantities required,” according to the BVSE report.

In addition, the BVSE states, obsolete scrap was “the most sought after,” and dealers could not supply sufficient quantities to meet demand. “Thus, those mills with high demand were forced to make further price concessions.”

However, the BVSE also reports that as of mid-December, Turkish consumers have not reappeared on the market since November. “Only nine or 10 ship cargoes were purchased from the Baltic Sea area and north Europe, and offered pricing remained more or less unchanged,” the report says.

LACKLUSTRE VOLUMES

Industry insiders interviewed by Recycling Today Global Edition express similar views on the current state of the global steel scrap market.

Tom Bird, managing director of Mettalis Recycling in the United Kingdom observes that scrap markets have been quiet in December.

“We’re not seeing the usual preyear-end buying spree,” he says. “Normally at this time of the year we do see some buying activity for January shipment.” But, Bird adds, that was not the case in December.

“It is absolutely dead as a dodo out there,” he says. “There is nothing happening.”

Bird says that volumes are down. While some colleagues have indicated that traded volumes are down by as much as 30% to 40%, “people are talking even higher than that,” he adds.

Evidence of these brutal market conditions can be seen in the U.K. and elsewhere through industry headlines in recent months, Bird says. As one potentially positive sign, he points to December news reports of a production curtailment at the steel producer Nursan in Turkey related to financial issues that may prompt Turkish steel mills to prioritize the purchasing of scrap over billet.

However, other headlines point to continued challenging conditions for scrap markets. In September SSI UK, a subsidiary of Thailand-based Sahaviriya Steel Industries, announced it was shuttering its integrated steelmaking complex in Middlesbrough, United Kingdom, removing a major player from the market.

Also, Bird says the U.K.’s largest domestic buyer, India-based Tata Steel, “has decided they will not require any scrap until April, as it stands at the moment.”

He says that leaves Spanish-owned Celsa Steel UK as the country’s only mill significantly purchasing scrap domestically in addition to “about a thimbleful elsewhere.”

Considering the 2015 shutdowns of the Teesside and Scunthorpe mills in the U.K., owned respectively by SSI and Tata, “steel scrap demand has decreased massively by the end of 2015,” Bird says.

Turkish buying activity also is quiet in December, he said, adding, “We normally expect to see buying at this time of year,” along with an uptick in prices. However, Bird continues, “there doesn’t seem to be any evidence of buying, and prices don’t seem to have moved.”

The collection of similar story lines adds up to a picture that is less than encouraging for the ferrous scrap industry at the close of 2015 and heading into 2016.

“The market is certainly crushing anyone who can walk and chew gum at the same time,” Bird says. “There’s nothing to suggest that the markets are going to do anything for quite a while.”

However, he adds at least one glimmer of hope, offering a famous line from Shakespeare’s King Lear as one way to interpret the current market conditions: “This is not the worst, so long as we can say this is the worst.”

TURKISH MARKET DRIVERS

One of the largest newsmakers this year arguably has been Turkey, historically the largest consumer of ferrous scrap. Kevin Wong, consultant and analyst with MEPS International, based in the U.K., describes sporadic scrap buying activity from Turkey in December that was “deflated by weak underlying demand for finished steel material and the availability of low cost billet material.”

He says long product offers had fallen and prices are forecast to trade within a limited price range in the coming months.

Wong continues, “HMS (heavy melting steel) 1 and 2 [are] not expected to break $200 per tonne CFR [cost and freight].”

“The Turkish steel market is entering a period of low seasonal demand,” he continues. “Exporters are struggling to come to terms with a highly competitive global market.”

In addition, he says competition in the Turkish market includes scrap from the U.S., Europe and Russia, along with domestic scrap.

He characterises the Turkish market as having become sporadic in its purchasing of feedstock, particularly over the last two years, based on its production targets or rolling programs. Turkish steel mills that use scrap are competing with those that have opted to reroll billet instead of melting scrap to make their products, Wong adds.

Looking outside of the Turkish market, Wong characterises ferrous scrap demand as weak in China and India. “Prices have fallen sharply in the Chinese market [in December],” he says.

“Turkey is consuming less [ferrous scrap] since steel exports from Turkey are decreasing.” – Ugur Dalbeler

Wong says scrap collection and processing rates also have fallen in recent months, and inventory levels are being controlled. “No one wants to carry material into the winter trading period in a falling market,” he explains.

The availability of Chinese material also has curtailed pricing from suppliers around the world, Wong says, noting that prices in the U.S., Japanese, Korean and Taiwanese markets have fallen, “but they are now more in line with global levels.” He adds that offers in Brazil and South Africa remain high, however, in light of local factors.

Even so, concerning the prices of major ferrous scrap grades, Wong says trading ranges across the world have narrowed over the last six months.

“Beforehand, there were large price premiums for domestic ferrous scrap material compared to the imported scrap,” Wong says, referring to the sharp decline in domestic U.S. scrap prices in recent months. “They are now more or less in line with export offers,” he says.

In addition, Wong says currency fluctuations also have affected scrap purchasing activity.

“U.S. exporters have had to reign in their price demands when selling material to the Turkish, Taiwanese and South Korean clients,” he says.

Ugur Dalbeler, general manager of Turkey’s Çolakolu Metalurju Metalurju, also interviewed in December, questions how Turkish mills apparently have managed to buy scrap all at once, in effect bringing prices up each time.

“Because of the market being volatile, mills tend to buy in the last minute in order to shorten lead time,” he says. “However, so far this has worked against them since scrap exporters know exactly what level of inventory each mill carries and when they intend to appear in the market, so they position themselves accordingly,” Dalbeler adds.

He says that while Europe has maintained a steady level of steel production since 2009, consumption of scrap in the European region as a whole is falling.

“Turkey is consuming less [ferrous scrap] since steel exports from Turkey are decreasing,” Dalbeler says.

He also cites Egypt’s struggles with energy and currency issues, which are affecting its imports, along with cheap billet availability from Eastern Europe and China as other factors that have resulted in a drop in scrap consumption in the region.

Dalbeler says the cost of scrap feedstock rather than the grade is the main priority for Turkish mill buyers, “therefore demand is concentrated mainly on HMS grades.”

However, he also describes a downward price trend when it comes to steel prices, adding “because of [the] Turkish attitude, we observe some hikes from time to time, but my view is still down in the coming months.”

Dalbeler cites iron ore being below $40 and the closure of EAF (electric arc furnace) mills as two factors likely to put further pressure on scrap prices. The euro-to-dollar exchange rate is another important factor when it comes to European prices, he says.

Commenting on the state of the Turkish steel industry heading into 2016, Dalbeler says it is suffering and has been for the last three years based on four major factors: high raw material prices, stiff competition in the international arena, dumped imports from sources where steel industries are subsidised and protectionism spreading throughout the world.

Outside of China, and with the exception of countries such as Russia and Brazil that are enjoying cheap and large supplies of resources, “the Turkish steel industry still has advantages over many steel industries, i.e. Europe and the U.S.,” Dalbeler says. He adds that the Turkish steel industry will maintain a strong position in 2016 because the country’s mills are technologically advanced; low-cost, efficient producers; advanced marketers; and known for the quality and performance of their products.