quarterly report – july 2015 - mrai · bir world mirror on ferrous metals july 2015 . quarterly...

BIR World Mirror on Ferrous Metals July 2015

Quarterly Report – July 2015

PRESIDENT’S OPENING REMARKS Dear colleagues, Since our last report in May, semi-finished and finished steel exports from China

have been climbing even as iron ore prices have increased and steel prices have decreased. Various global steel trade associations continue to voice their distress about Chinese steel overcapacity to their respective government agencies. Consequently, more anti-dumping investigations are now underway that may result in new duties on Chinese steel imports to those countries. One bearish note is that the Turkish elections resulted in a political uncertainty that has caused the economy to slow, and as a result we have seen fewer purchases of ferrous scrap from this region.

Meanwhile, the Russian government has included ferrous metals on its list of commodities that are, it states, essential for their domestic steel market, indicating that temporary export restrictions are a possibility. With that said, the overhang of Chinese steel in our markets has inevitably become the new normal. Until trade barriers become effective or China’s domestic demand for steel increases, we must be one step ahead and adjust our business models accordingly.

William Schmiedel Sims Group Global Trade Corporation President of the BIR Ferrous Division

This Mirror is also available in the members’ area section of our website www.bir.org


WORLD STEEL RECYCLING IN FIGURES January-March 2015 update

by Rolf Willeke, Statistics Advisor of the BIR Ferrous Division

Figures from worldsteel for the first three months of 2015 confirm a decrease in global crude steel production of around 1.8% compared with the same period in 2014 to 400.03m tonnes. Statistics for January-March 2015 show a year-on-year crude steel production decrease in China

(-1.7% to 200.1m tonnes), the EU-28 (-0.6% to 43.69m tonnes), the USA (-7.6% to 20m tonnes), Japan (-3% to 26.75m tonnes), the Republic of Korea (-6.5% to 16.7m tonnes) and Turkey (-8.8% to 7.7m tonnes) whereas growth was recorded in Russia (+4.5% to 17.98m tonnes). Global crude steel capacity utilisation in March this year was 71.6%, or four percentage points lower than in March 2014. Mainly negative developments in steel scrap consumption In the first three months of 2015, there was a drop in steel scrap usage for crude steel production in the EU-28 (-1.25% to 23.7m tonnes), China (-9.1% to 21m tonnes), Japan (-9.3% to 8.5m tonnes), the Republic of Korea (-13.3% to 7.2m tonnes) and Turkey (-11.5% to 6.4m tonnes). In all individual cases, the downtrend in scrap usage was greater than the decline in crude steel production. Also in decline during the first quarter of 2015 was steel scrap consumption in the USA (-6.98% year on year to 12m tonnes). Interestingly, this drop in usage was less steep than the fall in US crude steel production of 7.6%. Conversely, Russia recorded an increase in steel scrap usage in the first three months of this year of 8.8% to 3.33m tonnes whereas its crude steel production was only 4.6% higher. Steel scrap imports mainly in decline Figures for the first three months of 2015 show that Turkey - the world’s leading steel scrap importer - reduced its overseas purchases by 5.7% to 4.143m tonnes. Cuts in steel scrap imports were also made by the Republic of Korea (-47.8% to 1.196m tonnes), the USA (-7.8% to 0.964m tonnes), the EU-28 (-17.1% to 0.648m tonnes), China (-2.9% to 0.545m tonnes),

Indonesia (-46.1% to 0.322m tonnes), Canada (-17.9% to 0.256m tonnes), Switzerland (-5.3% to 0.124m tonnes) and Malaysia (-57% to 0.098m tonnes). It is interesting to note that the sharp 42.6% downturn in China’s steel scrap imports last year was largely arrested in the first quarter of 2015 (-2.9%). The January-March 2015 figures also reveal a strong increase in overseas steel scrap purchases by India (+45.8% to 1.448m tonnes), Taiwan (+42.9% to 1.225m tonnes), Mexico (+76.2% to 0.319m tonnes), Belarus (+17.7% to 0.233m tonnes) and Thailand (+16.1% to 0.202m tonnes). Notably, India was the world’s second-largest steel scrap importer in the first quarter of 2015. EU-28: still the leading steel scrap exporter In the first quarter of 2015, there was a steep reduction in EU-28 steel scrap exports (-10.4% to 3.525m tonnes), although it remained the world’s leading steel scrap exporter. The main buyers of EU-28 steel scrap were Turkey (-4.9% to 2.137m tonnes), India (+20.3% to 0.373m tonnes), Pakistan (+194.9% to 0.23m tonnes), Egypt (-69.6% to 0.172m tonnes) and Switzerland (-8.6% to 0.117m tonnes). After dropping 17.7% last year, US overseas shipments declined just 5% to 3.259m tonnes in the first three months of 2015 - an export total not far short of that recorded by the EU-28. The major buyers of US steel scrap to increase their purchase levels were Turkey (+32% to 0.94m tonnes), Mexico (+48.6% to 0.257m tonnes), China (+17.3% to 0.19m tonnes) and India (+225.9% to 0.189m tonnes). Conversely, there was a slump in purchases by the Republic of Korea (-54% to 0.25m tonnes) and by Taiwan (-11.4% to 0.528m tonnes). A sharp upturn was clearly visible in Japan’s overseas shipments of steel scrap in this year’s first quarter (+28.2% to 1.926m tonnes). Although there was a decline in shipments from Japan to the Republic of Korea (-33% to 0.653m tonnes), exports to China jumped 6.9% to 0.465m tonnes while shipments soared to both Taiwan (+1043.6% to 0.446m tonnes) and Vietnam (+500% to 0.294m tonnes).


BIR World Mirror on Ferrous Metals July 2015 A significant export increase was also recorded by Russia in the first quarter (+8.6% to 1.115m tonnes), with the biggest buyers being Turkey (+15.4% to 0.487m tonnes) and Belarus (+12.6% to 0.214m tonnes). Meanwhile, lower overseas shipments were posted in the first three months of 2015 by Canada (-33% to 0.793m tonnes), Australia (-3.7% to 0.444m tonnes) and South Africa (-8.9% to 0.358m tonnes).



US and Pacific Rim By George Adams, Ad Hoc Board Member of the BIR Ferrous Division SA Recycling, USA

USA At the beginning of May, ferrous scrap processors saw their flows improve somewhat. At that time, mills had a high steel scrap and finished goods

inventory and many felt there would be a softening of demand for steel scrap and of steel prices. As the export market started to improve, US East Coast exporters became more aggressive for material. Demand from the mills in the south was much greater than that from their counterparts in the northern and mid-west parts of the USA, which also helped stabilise prices. As we headed into June, domestic steel producers were projecting better production rates; hence, their demand was expected to increase and most felt fairly bullish about scrap pricing. July is still uncertain, but most seem to speculate that scrap prices will remain unchanged. Pacific Rim China China continues to have a huge impact on the scrap market, not because it is buying scrap but because it is exporting huge quantities of billet, rebar and other steel products. In May, the most recent month for which figures are available, China exported 9.2m tons.

These exports are affecting all markets around the world and no country is immune. With iron ore continuing to trade below US$ 60 per tonne and iron ore shippers continuing to add capacity, there is no reason to believe that the price of this commodity will rise. Therefore, there is no reason to believe China will raise the price of the steel it is shipping or that it will discontinue its high volume of exports. As long as this high volume of new steel is being shipped, it is unlikely that the price of scrap can rise in other markets. South Korea South Korea was absent from the deep-sea market for March and April, with its scrap requirements being fulfilled via the short-sea market of Japan. Finally, in early June, South Korea bought a few deep-sea cargoes, the last of which was concluded on the final day of June for an HMS price of US$ 253 per tonne. The country is also being hit hard with inexpensive Chinese billet which is putting tremendous pressure on its markets. Taiwan Container prices in Taiwan rose in May to a high of US$ 235 per tonne for HMS but then fell every week in June to close the month at US$ 210. This decrease was due to the high volume of Chinese billet that flooded, and continues to flood, Taiwan. Billets have been landing in the country within the US$ 315-320 per tonne range, causing rebar to fall below US$ 400. This has put tremendous pressure on the Taiwanese market, with local steel mills saying that HMS prices need to be in the US$ 180-190 per tonne range in order to be competitive against Chinese billets. South East Asia With the ongoing contraction in its domestic demand for steel, China has continued placing excess product in the international market. Roughly 31% of such exports have been going to Vietnam, Thailand, Malaysia, Singapore and Indonesia. In the second quarter, we saw mills in South East Asia struggling to determine their scrap demand and the adequate scrap price that would allow them to compete against imports. If China increases its exports, it is highly probable that we will continue to see this trend predominate in South East Asian countries.



Japan by Hisatoshi Kojo, Board Member of the BIR Ferrous Division

Metz Corporation

The results of the monthly Kanto Scrap Dealers’ Association tender for approximately 20,000 tonnes of H-2 are treated as an index for the Japanese scrap export price. The results from the tender held on June 10 were Yen 27,710 per

tonne FAS (US$ 225.28), which is equivalent to Yen 28,700 per tonne FOB (US$ 233.33). The sum was higher than expected as it equated to an increase of Yen 2085 per tonne (US$ 16.95) over the tender held in May.

The tender results were attributed to a number of background factors such as forecasts that the FOB export price in yen would increase given some indications from the currency exchange market of a further potential depreciation of the Japanese yen. In addition, there were growing expectations that the US scrap export price would adopt a more bullish tone given that the US Composite price increased by US$ 16.67 per gross ton in June when compared with a month earlier.

But when the Japanese currency depreciated beyond Yen 125 to the US dollar, a cautious statement was issued from the government authorities and the exchange rate trend shifted towards a stronger yen. Also, China resumed its aggressive exports of inexpensive billet because the Chinese iron ore spot price - which had climbed continuously to the beginning of June - dropped from around US$ 65 per tonne to US$ 60 on a CFR basis. Some mills in Taiwan, Vietnam and Indonesia started buying Chinese billet and reduced their scrap purchases, resulting in an easing of the supply-demand balance and therefore in a market downtrend.

At the time of writing, Chinese billet is being offered at US$ 325-330 per tonne CFR for South East Asia, although there is some variation depending on the destination. Meanwhile, the Japanese H-2 price is at US$ 235-240 per tonne CFR for Taiwan and US$ 250-255 for Vietnam. The price differentials are down to US$ 70-90 per tonne such that scrap is considered rather expensive.

Given these circumstances, export prices for Korea are coming down. At the time of writing, the FOB price for Korea has dropped

by around Yen 3000 per tonne (US$ 24.39) to some Yen 25,000-25,500 (US$ 203.25-207.32).

Depending on developments around the Greek financial crisis, the shift in currency exchange rates and China’s steel export policy, scrap buying interest seems likely to be low and a bearish market would normally be the result. However, generation of scrap has been declining in recent years and there are some yards and dealers who are scheduling July and August shipments from existing contracts such that the scrap market should not witness a steep price fall.

* Prices in this report are calculated on an exchange rate of Yen 123 to the US dollar.

India by Zain Nathani, Vice-President of the BIR Ferrous Division Nathani Group of Companies

The Indian scrap market has been in a state of lull and confusion for many weeks. With no real clarity from the Directorate General of Foreign Trade (DGFT) regarding the revised pre-shipment inspection (PSI) rules for scrap imports into India, most foreign suppliers have refrained from

offering new material and inspection agencies have refused to carry out new inspections.

For many months, the Metal Recycling Association of India (MRAI) - with the support of BIR and various other local and national associations - has worked tirelessly on explaining to the Indian government the impracticalities and difficulties of implementing some of the new PSI rules. The MRAI was successful in persuading the DGFT to water down some of the earlier requirements but the new PSI rules became effective as of July 1. We are hopeful that material flows will recommence and that DGFT-approved inspection agencies will resume inspections at the earliest point.

As an alternative to obtaining a PSI certificate from a DGFT-approved inspection agency, foreign suppliers now also have the option to export certain grades of processed scrap (shredded, sheared, baled, briquetted, etc.) into India via self-certification.


BIR World Mirror on Ferrous Metals July 2015 This is subject to various other terms and conditions being followed by the Indian importer. In such a scenario, no PSI certificate is required from a DGFT-approved inspection agency although the material can be shipped only to some major ports in India where radiation detection equipment has been installed. Indian ferrous scrap imports amounted to 4.9m tonnes in the 12-month period from April 1 2014 to March 31 this year, a total higher than that for the previous year but short of the import figure for 2012/13. This has to do in large part with the many challenges currently facing the domestic steel industry, and regulatory hurdles/compliance requirements are not helping matters at present.

Russia and The Ukraine by Andrey Moiseenko, Board Member of the BIR Ferrous Division Ukrmet Ltd, Ukraine

Russia There has been a recent small price increase in the south of Russia of some US$ 5 per tonne to give an average level of US$ 190 delivered to the mill, but otherwise the market is generally stable. Prices will probably fall slightly in July to adjust to the

international market. The Russian currency has started weakening again and stands at more than 55 rubles to the US dollar, thus continuing to boost exporters. However, a freight rate increase as well as a shortage of trucks for domestic shipments can be expected as soon as the grain season starts in July. If international scrap prices remain low in July and August, there will be a decrease in steel scrap shipments for export. Ukraine The domestic market is quite active and a few mills increased their prices recently to 4400 grivna per tonne (around US$ 195) in order to support incoming scrap flows. However, one steel billet producer has announced that it is going to stop production until the end of July owing to negative margins. Therefore, slightly more scrap will be available on the domestic market such that steel mills will not need to increase prices further.

Exporters were reasonably active last month after new quotas were distributed in May. However, it appears the next quotas will not be distributed any time soon. New draft legislation has been presented to parliament and, if approved, it will set maximum quota volumes for a year and allow some companies (most probably steel mill subsidiaries) to buy all the quotas at auction, thus making exports impossible for other market participants. It might seem like a decent solution to sell quotas at an open and transparent auction; however, if steel mills are allowed to buy them, this becomes a weapon against exports. Exporters cannot pay US$ 50 or US$ 100 for a tonne of scrap for the right to export only that single tonne, whereas steel mills will be ready to pay this in order to buy all the remaining scrap in the country at US$ 100 per tonne. This is a new approach to limiting exports. Therefore, independent scrap processing companies are doing their best to stop this new legislation.

EU

by Tom Bird, Board Member of the BIR Ferrous Division Mettalis Recycling Ltd, UK

Following the BIR Ferrous Division meeting in Dubai, there was a slight reduction in scrap pricing of around Euro 10 per tonne across most EU regions for June. Demand was relatively healthy, with most mills booking their normal

tonnage requirements for the period. In the run-up to Ramadan, export activity was quiet and this dampened expectations. As outlined in the Indian market report, container activity slowed and Pakistan became quieter with the onset of Ramadan after an active period. Sentiment was a little more downbeat and this influenced the EU market in its decision to push through a reduction. At the time of writing, the market has taken a significant turn downwards. Over the last week or so, we have seen a notable impact from Chinese billet being purchased in the Turkish market.


BIR World Mirror on Ferrous Metals July 2015 At the end of May, prices for Chinese billet into Turkey were around US$ 365 per tonne; this figure fell rapidly to US$ 335 by mid-June and now levels are reportedly below US$ 320. This has had a marked impact on the price of scrap cargoes and, once again at the time of writing, business is being concluded at around the US$ 250 level for a tonne of HMS 80/20 compared to around US$ 270-275 at the beginning of June. Similarly, deals for Chinese billet are being concluded into Port Qasim at around US$ 330 per tonne, a level which is impacting the market in this region and driving down buyers’ expectations. It should also be noted that we have seen a firming in freight over the last week, thereby further impacting prices on an FOB basis.

In turn, the Spanish and Italian markets have seen a marked downturn over the last few days, with HMS falling to levels below Euro 220 per tonne (Euro 218 has been reported at the time of writing). With most mills in Spain closing for maintenance in July, very little buying activity is expected over the coming weeks until such time when there is a need to replenish stocks for August. All this negativity has left the EU domestic market looking to reduce prices significantly for July. The UK market is anticipating reductions of around £20 per tonne and Continental Europe some Euro 20-25. Demand is sporadic and some mills are looking to cut back production as annual maintenance work is scheduled. It has been announced that Tata Steel in the UK will be purchasing scrap for July only into its Port Talbot plant and that there will be no other purchases of external material into its largest scrap-consuming plant at Rotherham.

With the holiday period approaching across EU regions, it is likely that merchants will not actively chase material and will only commit to limited tonnages at these reduced levels. Margins and volumes will be under renewed pressure as the ongoing market reductions take effect. The economic and political turmoil widely reported in the Eurozone has once again impacted the exchange rate. Although the Euro has weakened, this has offered only marginal help to exporters as scrap prices in US dollars have fallen more rapidly. UK exporters have suffered even more with the pound/dollar exchange rate moving close to 1.6 from around 1.5 although, at the time of writing, the level has settled around US$ 1.55 to the pound; meanwhile, the pound is now worth over Euro 1.41 compared to Euro 1.35 previously. With the price reduction in US dollar and Euro terms coupled with the “strengthening” of sterling, exporters in the UK have suffered a double impact. As we move into the second half of 2015, business is very uncertain. Normally, the post-Ramadan period brings improved buying and ultimately a healthier market. However, the constant flow of cheap Chinese billet does not bode well for the next two quarters. A great deal will depend on how far this affects demand and pricing for steel scrap.

Disclaimer: BIR declines any responsibility regarding the content of these pages. The reports given represent the personal opinion of their authors and have only a reference value.


quarterly report – july 2015 - mrai · bir world mirror on ferrous metals july 2015 . quarterly...

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