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Steel Industry Insight

A look at what some of the US’ top export scrap destinations have been up to last year.

TURKEY

Turkish steel mills started 2011 on a hesitant note, retreating from the scrap market before entirely satisfying their scrap needs. According to sources, they anticipated a further decline in scrap prices due to an abundance of offers as soon as they returned to the market in January—and their hesitancy was rewarded. Both ex-US and ex-Europe scrap offers to Turkey declined by the end of the month, while CIS scrap suppliers struggled to adjust their offers downward to satisfy Turkish mills’ expectations. However, another factor weighed on mills in deciding how much to restock their scrap inventories—political turmoil in Egypt signaled potential volatility in the Middle Eastern steel markets.

Consequently, Turkish mills abstained from aggressive scrap bookings through much of early spring, even as scrap’s downward trend came to a halt in February. However, Japan’s massive earthquake and tsunami in March brought new concerns to the scrap market, as many analysts believed that short-term coking coal and iron prices would decline, pulling down scrap prices as well. Alternately, others predicted that the interruption of scrap flow to Japan’s Asian neighbors would raise demand for US scrap, and thus cause scrap prices to strengthen in the Turkish market.

Turkey continued to delay scrap bookings throughout the spring, and by early May, the stable scrap price trend began pointing upward. Finished steel prices in Turkey were on the rise, contributing to the revival of demand in the Turkish domestic market. However, the trend cooled a bit by summer. Scrap prices remained stable through July, even though scrap suppliers attempted to increase prices. Turkish mills continued to buy scrap in line with their needs, but as demand waned in the finished steel markets, Turkish steel producers abstained from building up their scrap inventories beyond what was immediately necessary.

During the early fall, Turkey began looking more toward Europe for scrap, as a steep depreciation of the euro against the US dollar provided a better pricing advantage for European scrap suppliers. While Turkish mills were in general not very active in new scrap purchases, they could not ignore significantly competitive ex-Europe prices. By November, however, Europe’s deepening economic problems and debt crisis resulted in a significant reduction in the region’s overall industrial output, declining scrap flow and depressing scrap supplies in Europe. The resultant increase in scrap offer prices to Turkey was not readily accepted by Turkish mills until they returned to the market in force in late fall.

As the end of 2011 approached, Turkish mills continued to book scrap purchases mostly from Europe due to a wider availability of offers from European sources. But in the last weeks of the year, scrap prices in Turkey witnessed an uptrend, which led to Turkish steel producers preferring to stand back and monitor the market trends until at least after the Christmas and New Year holidays.

CHINA

The domestic scrap market in China started 2011 with a bang after Chinese mills entered the year with low scrap inventories and scrap producers upped purchase prices. Additionally, a significant share of domestic scrap was held back by scrap traders, who preferred to stock up and wait for further price increases.

Prices did indeed increase through late winter against a background of general uptrending in the finished steel market, especially after Chinese steel producers returned from the New Year holiday in early February. Additionally, adverse weather conditions in some areas resulted in tight scrap supplies, further pushing up prices. However, import scrap prices into China declined during the month, with ex-US scrap offers down slightly compared to early January.

The domestic scrap market settled down as spring approached, and the market saw a long-lasting neutral trend through April. A few sporadic price increases were observed as small and medium-sized scrap suppliers stepped up their activities, but the larger scrap companies reacted to uncertainty in the market by adopting a wait-and-see policy. Traders, on the other hand, increased their stocks of scrap throughout April as many market participants believed seasonal factors would soon result in increased steel consumption.

However, that prediction did not exactly pan out—by mid-May, the negative impact of electricity rationing in various regions of China led steel mills to reduce their demand for scrap. This, combined with scrap distributors trying to increase their sales volumes, resulted in a sideways to slightly down trend for domestic Chinese scrap through the end of spring, and in order to avoid risks associated with a growing pessimism in the market, scrap traders began efforts to reduce their inventories.

Consequently, scrap availability during the summer was low, but because Chinese steel mills were under financial strain, it was difficult for them to accept higher prices. But as finished steel prices began to rise in August, domestic scrap prices also increased and traders held back inventories in anticipation of even higher prices. The speculation proved accurate, but instead of a stable upward trend, Chinese scrap prices were on a rollercoaster throughout September, as high scrap demand and short supply contrasted with a softening in finished steel prices. By the middle of fall, rising international scrap prices buoyed the drop in Chinese steel prices, and scrap prices held mostly steady through November.

By the end of the month, the scrap market saw a slight rebound in some areas, and mills began to replenish their inventories before supply got too low. However, heavy winter restocking activity was not yet evident as December approached and demand was lethargic, which indicated that there was insufficient support for the suddenly uptrending scrap prices.


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