China's billet exports scalding global steel scrap demand

15 December 2015

India generates a good volume of non-ferrous scrap, a feedstock for making steel through electric arc furnaces (EAFs) and induction furnaces (IFs). However, supply from local sources continues to fall short compared to requirements, giving a push to imports of steel scrap.

Addressing a conference in Prague organised by the Bureau of International Recycling, an Indian steel ministry official said the country's steel scrap consumption would rise to 56 million tonnes (mt) in the next 10 years from 32 mt now, as more metal would be made through the secondary route. Scrap imports, according to him, would double "as early as 2020" to compensate for domestic scrap output not proving sufficient to meet growing requirements of EAFs and IFs.

In the first eight months of 2015, India's scrap imports were up 18 per cent from a year ago to 4.187 mt and it is quite likely we'll end the year with imports of 6.30 mt. India remains an exception, which continues to record steel production rises. The country's output of the metal was up 3.3 per cent to 75.1 mt in the first 10 months till October when world production shrank 2.5 per cent to 1,346 mt. During this period, China made 2.2 per cent less steel at 675 mt.

The fall in iron ore prices to nearly $40 a tonne, a 10-year low, has led to a shift in steel production from EAFs and IFs to the primary blast furnace route, particularly in China. This explains the steep fall in US exports of ferrous scrap to China from a peak of 5.5 mt in 2009 to a quarter of an mt in 2014.

Naturally, the focus of all major scrap exporting countries has shifted to non-China destinations such as Turkey, India and south and south-east Asian countries. Bangladesh's import growth rate is set to be the fastest among south Asian countries in 2016 when its EAFs and IFs are to use anything up to 3 mt foreign origin steel melting scrap against 600,000 tonnes this year.

Mills in Bangladesh, which are about to commission new steelmaking capacity of 2 mt tonnes to make a total of 3 mt, have a distinct preference for using scrap where the rate of recovery is much higher than direct reduced iron. Duty significantly favouring import of scrap ($19 a tonne) vis-a-vis billet ($90 a tonne) has incentivised growth of steel capacity in Bangladesh.

Scrap buying by Pakistan, too, has picked up. Asia on the whole has nearly 30 per cent share in the global seaborne steel scrap trade of around 100 mt. South Korea sits at the top of buyers' table with imports of 8 mt in 2014 followed by India.

It is Turkey, the world's largest importer of steel scrap, that decides the prices of this EAF and IF feedstock. Last year, its imports exceeded 19 mt. In the first nine months of 2015, Turkish imports are down 18 per cent to 12.04 mt from a year earlier. Scrap imports falls are because of inundation of Turkish market with low priced billets from China. This is proving to be a discouragement for billet production by local EAFs.

The Turkish Steel Producers' Association says "low-cost imports narrowing the gap between finished steel and raw material prices and stronger competition in the country's export market" are responsible for weakening of steel production in Turkey, which is seen as a bridge between Asia and Europe.

According to World Steel Association, Turkish steel production between January and October is down 10 per cent to 26.6 mt from 28.5 mt a year ago. This could not have been otherwise.

The side in steel production in Turkey was primarily responsible for its cost and freight import price of the most commonly traded heavy melting scrap '1 & 2 (80:20)' sinking to a historical low of $169 a tonne on October 20 from the June monthly average of $270.2 a tonne.

Now the Turkish government order that all steel finished products made from billets imported from China will have to be exported within nine months has triggered fresh import demand for scrap by EAFs. The novel Turkish fiat has caused a rise in scrap prices for a couple of weeks on the trot. The question is, will this hold for long in the current economic environment?