A glimpse at the worldwide scrap market
The biggest news in the international scrap market involved the mid-winter Australian floods that devastated the country’s coal industry and also severely affected iron ore mining. With reduced supplies flowing into the global marketplace, integrated steelmakers are expected to compensate with an increased focus on scrap, which would spike worldwide demand and, most likely, prices as well. How will that affect the major global scrap markets? A review of 2010’s market conditions and current situations should shed a little light on the possibilities.
Turkey began 2010 registering significantly lower scrap trade volumes than the same period of 2009—mills preferred to run on minimum scrap stocks and wait for a strengthening in the finished product market before booking significant quantities. Following the first quarter, however, Turkey experienced the same spring highs (driven by inventory restocking) and early summer lows (a result of softening finished steel prices) as the rest of the international scrap market. Demand and prices started to firm up around July, but then slowed down in August after Ramadan. The Turkish scrap market stayed relatively sideways during the fall, but after November, Turkish scrap prices—both domestic and imported—began a strong uptrend that lasted through the middle of January. However, the lack of acceptance for rapidly rising finished steel prices as well as weakening demand concerned steel producers, who backed off from accepting high scrap prices.
For the remainder of January, Turkish steelmakers postponed their scrap purchases, causing ripples throughout the international scrap market. As the world’s largest scrap importer, Turkey’s return was highly anticipated, but the only activity heard in the beginning of February involved low-ball offers and an uncertain attitude toward developments in the regions from which Turkey imports scrap.
Unlike its import sources, China’s domestic scrap market did not fluctuate much throughout 2010. In March, steel production resumed at small-scale EAF mills, lifting the domestic scrap market slightly and improving trading activity. Scrap prices stayed high throughout the rest of spring, helped in part by higher finished steel prices, as well as a moderate tightening of the country’s scrap supply. By mid-summer, domestic Chinese mills focused on consuming what scrap inventories they already had instead of seeking out new stocks. This situation continued throughout the fall, but near the end of December, the Chinese central bank raised interest rates, causing a slight decline in finished steel prices and thus scrap prices as well.
Domestic scrap prices in China rose slightly in January, following the implementation of the tax rebate cancellation, but the market quieted down by the beginning of February, during the Lunar New Year and Spring Festival holiday. However, market activities were expected to rise significantly in the post-holiday period, as Chinese steelmakers fill up low inventories and prepare for the spring.
The Italian steel market started spring of 2010 with a combination of low inventories and high output—February registered a 15 percent month-on-month increase in steel production. Although Italy is traditionally a net importer of scrap, the country began increasing its export volumes in March, as foreign buyers seemed more willing than local ones to accept higher prices. By April, scrap quotations reached the highest level in the previous 18 months, but then softened in May, even though the tight scrap supply situation had not improved that much. Summer holidays slowed down the European steel market as a whole, but Italy came back strong, with mills buying significant quantities of scrap.
Fall approached with an unusual situation in the Italian scrap market—the gap between busheling and HMS/shredded prices was widening. Additionally, the balance between demand and supply was skewed, with flat products performing well compared to persisting stagnation in the longs sector. While scrap suppliers pushed for price increases, thinking that the steelmakers needed to restock their scrap yards, steel producers—especially rebar producers—found it hard to pass on higher production costs in their selling prices, preferring to cut their output levels instead. Nevertheless, scrap prices stayed afloat until the end of January, when waning optimism in the market translated into a slight correction.