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Stifled automotive output this year, driven by a supply shortage of semiconductor chips used in vehicles, has tightened prime scrap availability and widened the spreads between this grade of steelmaking raw material and obsolete scrap.
While wide prime-over-obsolete spreads have been most pronounced in the United States, they are also present in European and Asian markets. But automotive output across the globe is forecast to rise in the third quarter, which should narrow these spreads.
Following Chinese authorities’ attempts to cool domestic commodity prices in May, China’s domestic scrap market in June was far less volatile than a month earlier. We do not expect scrap prices to rise to levels seen in May amid the potential of further government intervention.
Meanwhile, scrap has maintained its appeal in relation to other steelmaking raw materials from a price perspective, and indicators suggest that scrap consumption has been broadly increasing across China this year. We believe this price competitiveness will continue to play a role in supporting demand.
As well, China has been increasing its presence in the seaborne scrap market, which supports regional prices and reduces the premiums that the country’s domestic scrap commanded relative to international levels in 2019-2020 when it halted imports.
In the iron metallics segment, market participants are looking at developments in Russia after it announced an export duty on several metals, including merchant pig iron (MPI), sold outside the Eurasian Economic Union from August 1, for a period of five months.
We expect that in the short term, Russian MPI exporters are likely to seek to ship volumes quickly prior to the export duty coming into effect, which could weigh on MPI prices this month. In the medium term, the export duty should support prices, not just for products from the Commonwealth of Independent States, but globally as well.
In turn, we have raised our MPI forecasts for the medium term, though we still expect softening demand from China to cast a shadow over the market and weigh on prices.
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