Gemini Corporation's director of steel division Ved Prakash assessed the demand in major scrap markets for SteelOrbis at at the SteelOrbis Spring '10 Conference and 62nd IREPAS meeting held in Budapest in June 6-8, 2010.
Can you tell us about your company and the main areas in which you are active?
We are a Belgium-based company established in 1989 by our chairman Mr. Surendra Borad. We have associate offices in Europe - Germany, Sweden, UK - and in Vietnam, China, Dubai, Saudi Arabia and the US.
Gemini is a gold member of BIR [Bureau of International Recycling] and deals with the recycling of raw materials, mainly steel scrap, plastics and also wood-based panels. As regards recycling steel, we deal with a volume of around 300,000 mt of scrap per annum, exporting mainly from Western Europe and the US to Southeast Asia.
We believe in value addition and in the quality of the material and the service we provide to our customers. We inspect every single cargo we load using our own inspectors even if there is third-party inspection involved in the shipment.
At its beginning Gemini handled plastic scrap. When did you start your activities with ferrous scrap?
Gemini entered the ferrous scrap business back in 2004. For the last six years we have been actively involved in scrap trading.
Being responsible for the ferrous scrap division, what do you think about the recent scrap market situation and the outlook for the steel market worldwide?
The current scrap market may seem a bit gloomy but I can say that scrap will be in good demand in the long run. When demand resumes, scrap prices will post a serious jump. Scrap is not a commodity for which price and demand is consistent. Demand cannot go absent for a longer period of time. There is a substantial growth in steel production in Asia; strong demand for all kinds of raw material, including scrap, is expected from that region as well.
You participated in the raw materials committee at the 62nd IREPAS Meeting. What was the general consensus at the raw materials committee?
Participants admitted that it is a difficult time for them due to low demand, but at the same time they agreed that the main issue is how long the weak demand will last. If prices continue to remain low, then it becomes very difficult to collect material and the volume of material goes down.
Have you also noticed a slowdown in scrap collection activities?
Yes we have. Everybody in Europe is also taking the forthcoming holiday season into consideration. Traditionally collection decreases during this period. This is the right time for scrap processors to keep inventory under control in the context of the current poor demand.
What is the correlation between iron ore and scrap prices? What does it look like now and what should we expect?
For example in Europe, capacity operation of many big blast furnaces is down by 20-25 percent, and I believe that if iron ore prices go up too high they may increase the rate of scrap they use in production. Also, scrap in Europe is locally available whereas iron ore mills have to wait for shipments from Brazil, Australia or India. However, if iron ore levels do not climb up much, mills will use less scrap. This is the correlation of scrap and iron ore prices for integrated steel mills. For EAF mills, of course, the story is different.
At this stage, some say iron ore prices will continue climbing, while many others question how realistic this expectation is in view of the weak demand for finished products at a time when capacity cuts are being discussed. What is your opinion on this?
Under current circumstances it very much depends on China and if it will resist the high price levels or not. As we know, the Chinese government is increasing pressure for the release of new credits in the steel sector. It will be interesting to watch how the Chinese steel industry is going to negotiate the iron ore price.
Many iron ore suppliers are now trying to change the contract structure, making iron ore also like a scrap commodity with spot prices changing quite often.
Do you ship your scrap to the Far East in containers?
We never ship in bulk. All our scrap shipments to the Far East go in containers and I can say that the containerized shipping market is booming.
What are the advantages of container shipping today?
Containers are more affordable for many small and medium sized buyers. It is very convenient for buyers located inland. They can buy smaller quantities of scrap on a weekly basis. Most importantly, with purchases in containers you can utilize your working capital in a most efficient way. The container traffic of scrap is increasing every year and this year container shipments have increased by almost 25 percent.
Could you compare your sales volumes today with those of recent months?
In March and April we sold good quantities, while in January and February sales were very high. The situation is currently getting better with people in Southeast Asia quite interested in buying.
Do you receive any inquiries from Turkish scrap buyers? Do you think they are aware of the advantages of container shipments?
No, we do not often receive enquiries from Turkey. There is not a general awareness among Turkish buyers of container shipments. Containers could also be profitable for Turkish scrap buyers, especially nowadays. It would also be very interesting for the shipping lines as well. Currently the shipping business is not in very good shape and they still have to overcome the financial troubles of the crisis. Opening a new shipping trade lane of scrap in containers from Europe to Turkey could really be a good alternative for them. The handling of containers, customs clearance, inland transportation, etc., are big hurdles in Turkey for container shipments, but they can be sorted out with the shipping lines.
Could the higher discharge costs compared to bulk cargoes be the reason why this business is not preferred in Turkey?
At the moment I think this is the reason. Southeast Asia has been able to overcome this situation and last year most of the cargos shipped to India were in containers; only four or five cargoes were shipped in bulk. I met many Turkish customers at this conference who were very interested in buying scrap in containers but were afraid of unknown costs. In time Turkey can also overcome these issues. I see a good possibility in the near future for containerized shipments for Turkey.
Can you compare the total volume shipped via containers and via bulk ships?
If we exclude South Korea and China, then Taiwan, Indonesia, Malaysia, India and Pakistan are the dominant markets for containerized shipments. India for example imports 2 million tons from Europe and 2 million tons from the US every year, and 90 percent of this volume is shipped in containers. There are regular shipments of scrap in containers from the US to South Korea. Other Far Eastern markets are more dependent on container shipment of scrap as opposed to bulk shipment.
How do you see the demand from scrap in the Far East other than China?
In Asia, India and Pakistan are very active for the moment. Indonesia, Thailand and Vietnam are also buying on a regular basis though the numbers are lower for the moment.
As a scrap supplier, what is your opinion on the overall scrap demand level?
In spite of all the gloom, as I mentioned before, I believe Asia will be the locomotive of demand for raw materials. Per capita consumption levels in Asia are only a half of what is consumed in Europe. So we see a considerable potential demand coming from the Far East. They will require scrap and they will put pressure on prices.