The South Asian flip-flop

Trade and price trends in the South Asian ferrous scrap market have endured a varied first half of the year, depending on the country.

India has emerged as the leader in subcontinental ferrous scrap on promising finished steel demand and trade finance prospects, while letters of credit (LC) issues in Pakistan and Bangladesh have held back trade in these countries. Moreover, the region also has benefited from falling bulk and containerized freight rates that dropped to prepandemic levels as the impact of the Russia-Ukraine war began to ease.

Imported containerized shred, the highest-traded volume grade, averaged $453 per metric ton cost and freight (cfr) to the Indian subcontinent in the first half of this year, falling 20 percent against $567 per metric ton cfr in the first half of 2022 and down 1 percent from the second half of 2022. In the first half of 2023, the highest price for this grade was $486 per metric ton cfr in mid-March, while the lowest was $402 per metric ton cfr in late July. We break down how each country in the region has fared this year.

India: Leading South Asia

India’s crude steel output trended upward between January and June despite subdued steel exports supported by steady domestic consumption and higher government infrastructure investments.

The country showed an unprecedented appetite for bulk vessel bookings in late 2022, which began receding this year. Between April 2022 and March 2023, ferrous scrap imports hit a record high of 10.3 million metric tons. This figure is projected to grow to 30 million metric tons by 2030 in line with the government’s ambition of 300 million metric tons of production capacity.

From January to May, Indian ferrous scrap imports more than doubled to in excess of 4.7 million metric tons annually. However, May imports marked the fifth successive monthly decline since 1.37 million metric tons in December 2022, the highest since 2007.

The U.S. was the largest ferrous scrap exporter to India, followed by the U.K., United Arab Emirates (UAE), Singapore and Canada.

Indian buyers found it difficult to source material from the UAE, Kuwait, South Africa, Yemen and Malaysia, despite shorter delivery periods, due to export restrictions in these countries. In fact, when Dubai Customs extended a temporary ban on scrap exports to September of this year, Indian ports retaliated by increasing inspections and suspending clearances of containers from the UAE.

Prices for bulk imports were lower by at least $40 per metric ton at the beginning of the year.

From January to June, imported bulk heavy melting steel (HMS) 1&2 (80:20) from the U.S. East Coast averaged $448 per metric ton cfr Kandla, down 21 percent against $570 per metric ton cfr in the first half of 2022 but up by 6 percent from the second half of 2022. The highest price for the grade was $495 per metric ton cfr Kandla on March 10, and the lowest price was $400 per metric ton cfr Kandla on May 18.

From the U.S. East Coast, shredded and plate and structural (P&S) premiums over HMS 1&2 (80:20) stayed at $20 per metric ton from January to June.

Domestic secondary rebar averaged 54,815 rupees ($667) per metric ton ex Mumbai, down 7.7 percent from 59,390 rupees ($715) per metric ton ex works in the first half of 2022.

Domestic alternatives for imported scrap also marked declines, though at a slower pace. In the first half of this year, direct-reduced iron (DRI), or sponge iron, averaged 30,375 rupees ($366) per metric ton ex Raipur, down 13 percent from the first half of 2022. Shipbreaking melting ferrous dropped by 10 percent from the first half of 2022 to 38,990 rupees ($469) per metric ton ex yard Alang, while domestic HMS 1&2 (80:20) averaged 38,990 rupees ($469) per metric ton delivered Mandi consumer, down 3.7 percent from the prior year.

Containerized freight from the U.S. East Coast ex Savannah port for 20-foot loading to Nhava Sheva and Mundra ports dropped to $18 per metric ton by the end of the first half of this year, down 53 percent from $38 per metric ton in late 2022. The freight averaged $30 per metric ton in the first half of 2023, down from $51 per metric ton in the first half of 2022.

Pakistan and Bangladesh: Credit challenges

Depreciated local currencies, elevated production costs driven by electricity and gas tariffs, unsupportive financial policies and challenges related to LCs have hindered trade in the two South Asian countries for more than a year.

Delays in LC approvals resulted in bulk trade movements only for trusted mills or traders, with increasing demand for prepayment from yards for containerized options. For shorter delivery periods, Far East Asian exporters demanded a premium over long-haul options. The U.K. and European-origin grades fetched a premium of about $5 per metric ton over the U.S., Oceania and Latin America.

Pakistan

Financial woes and the impact of the unprecedented floods in late 2022 continued to hamper the Pakistani economy and its ferrous scrap trade between January and June.

Steel producers were burdened by additional taxes and costs as the country’s government made several adjustments to meet the International Monetary Fund’s (IMF’s) demands to receive financial aid. This resulted in production cuts at steel companies.

Moreover, cheap steel products smuggled from Iran and Afghanistan dampened the domestic sentiment. According to the Pakistan Association of Large Steel Producers (PALSP), Islamabad, around 500,000 metric tons of steel were smuggled into the country annually.

Still, a few green shoots could help Pakistan’s ferrous scrap and finished steel market out of the doldrums. The country aims to adopt a barter trade system for several commodities, including metals with Afghanistan, Iran and Russia, hoping to minimize the usage of its dwindling foreign currency reserves. The country also was approached with an offer for a nine-month standby fund of $3 billion from the IMF to provide importers with much-needed reserves for LCs. As a part of this relief package, the government also has relaxed import restrictions and will allow LC issuance.

Over the first half of this year, the Pakistani rupee depreciated by 27 percent against the U.S. dollar to 286 Pakistani rupees June 30 from 226 Pakistani rupees Jan. 1 and was down from 205 Pakistan rupees June 30, 2022.

Ferrous scrap imports dropped by 50 percent during the past six months to 839,282 metric tons from 1.66 million metric tons a year ago.

Domestic ferrous scrap, Q toke grade (equivalent to shredded) averaged 178,050 Pakistani rupees ($622) per metric ton ex yard Lahore from January to June, up 43 percent from 124,702 Pakistani rupees ($420) per metric ton ex yard Lahore in the first half of 2022 and 35 percent higher from July to December 2022.

Domestic rebar grade 60 averaged 276,790 Pakistani rupees ($934) per metric ton ex works Karachi in the first half of this year, a 35 percent increase from 205,728 Pakistani rupees ($694) per metric ton ex works the first half of 2022 and 25 percent higher from the second half of 2022. The highest rebar price was 305,000 Pakistani rupees ($1,029) per metric ton ex works in mid-February.

Containerized freight from the U.S. East Coast ex New York port for 20-foot loading to Qasim port dropped by half annually to $26 per metric ton by the end of the first half of this year. Freight averaged $39.50 per metric ton from January to June, down 22.5 percent from $51 per metric ton in the first half of 2022.

Bangladesh

Bangladesh became the world’s largest recycled ships importer with 497,878 light displacement tons (ldt) from January to May of this year. Annually, the country’s ship imports dropped by 28 percent, while those in India and Pakistan fell 42 percent and 77 percent, respectively.

Ferrous scrap imports fell by 34 percent from January to June to 1.87 million metric tons from 2.83 million metric tons in that same time frame in 2022, falling behind South Korea and Vietnam on the list of top ferrous scrap importers. The country’s share of bulk imports fell below 70 percent of total imports.

High electricity tariffs and fuel costs and outages, in some cases, raised steelmaking input costs.

Bangladesh’s currency, the Bangladesh taka (BDT), depreciated by 2 percent against the U.S. dollar to 108.2 BDT on June 30 against 106.3 BDT on Jan. 1.

For imported bulk HMS 1&2 (80:20) ex Los Angeles U.S. West Coast averaged $446 per metric ton cfr Chattogram in the first half of this year against $574 per metric ton cfr Chattogram in the first half of 2022, but increased from $420 per metric ton cfr Chattogram in the second half of 2022. In late March of last year, the highest price was $720 per metric ton cfr Chattogram.

The bulk freight cargo 35/10 ex Los Angeles to Chattogram fell to $50 per metric ton by end of the first half of this year from $102 per metric ton in early 2022. The freight averaged $60 per metric ton in the first half of 2023, down 30 percent from $86 per metric ton in the first half of 2022 and 14 percent from the second half of 2022.

From the U.S. West Coast, the premium of shredded and P&S over HMS 1&2 (80:20) maintained at $10 per metric ton and $20 per metric ton throughout the first half of 2023. The cost of LC settlements has increased amid approval delays and capped LC limits by the government.

Domestic melting ferrous equivalent to P&S 5 feet averaged at 65,940 BDT per metric ton ($607 per metric ton) ex yard in the first half of this year, higher by 16 percent against 775 BDT ($7.09) per metric ton ex yard Chattogram in the first half of 2022 and increased 15 percent from 56,880 BDT ($520) per metric ton in the second half of 2022. In the first half of 2022, the highest was recorded at 71,500 BDT ($654) per metric ton ex yard in mid-March on elevated costs.

Domestic rebar grade 60 averaged 94,245 BDT ($862) per metric ton ex works large scale producer in the first half this year, up 14 percent from 82,800 BDT ($757) per metric ton ex works in the first half of 2022 and 8 percent from the second half of 2022. The high was 99,000 BDT ($905) per metric ton in mid-March.

A seasonal lag arising from monsoons is likely to end toward the end of August and support upcoming demand.

Kedar Joshi is Asia markets manager at Davis Index and can be reached at kedar.joshi@davisindex.com.