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This year has seen unprecedented volatility in the scrap world, with global events like the Russian invasion of Ukraine and knock-ons from the Covid-19 crisis meaning limited visibility for consumers and producers. The outlook for the rest of the year similarly remains cloudy, though overall sentiment is negative, according to market participants. Tepid finished product demand owing to global recession fears and the usual year-end destocking by consumers don’t bode well for scrap prices. One notable development, in particular, has been the relative slide of prime scrap prices vs those of obsolete scrap, to the point where prime has in some markets been valued at a discount to obsolete grades like shredded scrap.
In this article, Fastmarkets experts look at that and eight other market-changing events that have influenced global scrap markets from Chennai to Arkansas.
Bangladesh and India have increasingly rivaled Turkey for deep-sea steel scrap from around the world, driven by strong Indian local demand and a lack of containers.
Currency swings meant Turkish mills are less competitive in the import market. The Turkish lira dropped 50.4% in its value against the US dollar year on year in the second week of October 2022. Over the same time, the rupee lost 9% against the dollar, with the Bangladeshi taka down 16%.
The premium for Fastmarkets’ price assessment for steel scrap HMS 1&2 (80:20) deep-sea origin import, cfr Bangladesh, over the assessment for steel scrap HMS 1&2 (80:20) North Europe origin, cfr Turkey averaged $54 per tonne in October 2022. The highest premium this year was $74 per tonne, which came in June.
Due to freight costs, exporters need at least a $50-per-tonne premium to be attracted to sell bulk scrap to Bangladesh or India over Turkey, according to sources.
The spread between Turkish scrap import price and rebar export price has widened in the last two years, owing primarily to the country’s rising energy costs.
With effect from September 1, the cost of electricity for industrial use in Turkey increased by 50%, while the cost of natural gas increased by 47.6-50.8%.
Since the beginning of 2021, the cost of electricity has increased by more than 400%, while natural gas prices have increased by nearly 780%.
As a result, the country’s mills have had to raise their finished steel prices accordingly.
In October, the monthly average of Fastmarkets’ weekly price assessment for steel reinforcing bar (rebar) export, fob main port Turkey, was $677 per tonne, while the daily index for steel scrap HMS 1&2 (80:20 mix) US origin, cfr Turkey, was $367.70 per tonne.
This puts the monthly average of the scrap-to-rebar spread at $309.30 per tonne in October 2022, up from $226.43 in January 2022 and $177.93 in January 2021.
According to Ugur Dalbeler, vice president of the Turkish Steel Exporters’ Union and chief executive officer of steelmaker Çolakoglu, recent increases in energy costs add $25 per tonne to steelmaking costs in Turkey for electricity and another $15 per tonne for natural gas.
As a result, Turkish steel will be less competitive in export markets, he says.
Steel production costs have increased by $40-50 per tonne, and this must be reflected in the end-product price, even though there is no demand
“Steel production costs have increased by $40-50 per tonne, and this must be reflected in the end-product price, even though there is no demand,” a Turkish trader said. “If slab and billet users were more rational, they would switch to [using semi-finished steel] or reduce their output of [steel products].”
More steel scrap buyers in both Bangladesh and India have been pushed into the deep-sea bulk market this year due to more appealing pricing. High container freight costs, together with high Indian local scrap prices, have elevated containerized scrap prices above those for bulk since May 2022.
The overall share of bulk buying in Bangladesh is currently around 70% vs 30% in containers compared with 53% in bulk and 47% in containers in the period from July 2019 until June 2020, according to major mill BSRM.
The premium for Fastmarkets’ price assessment for steel scrap HMS 1&2 (80:20) containerized import, cfr Bangladesh, over the assessment for steel scrap HMS 1&2 (80:20) deep-sea origin import, cfr Bangladesh averaged $26 per tonne in October 2022.
As recently as March 2022, the deep-sea HMS 1&2 (80:20) in the country was averaging $69 per tonne above the containerized price for the same grade.
2022 has seen a consistent slide in the Japanese prime scrap premium amid weak demand for special steel bars in key export markets such as South Korea and Taiwan, together with increased generation due to rising Japanese automotive production. The spread has also dropped amid a tighter supply of H2 from waning Japanese economic activity.
The premium for Fastmarkets’ price assessment for steel scrap Shindachi bara export, fob main port Japan, over the assessment for steel scrap H2 export, fob main port Japan, fell to ¥3,188 ($22) per tonne in October, down from September’s ¥3,825 and to the lowest level since October 2020. The highest spread this year was in January, with ¥7,250 per tonne.
The low premium theoretically makes Shindachi more affordable for consumers, but there are roadblocks to export purchasing. For example, strike action at key Shindachi importer Hyundai over the last month continued to squeeze demand for the grade, according to market participants.
The spread between No 1 busheling and shredded scrap in the US has also been on a wild ride in 2022, with participants wondering when the markets will normalize.
The market is upside down, with shredded scrap selling at a $30 per gross ton premium to No 1 busheling in Chicago, which is odd since busheling has a higher yield and is a cleaner scrap.
In Chicago, No 1 busheling is selling for $355 per ton, compared to shredded scrap, which is selling for $385 per ton.
Compare that to April 2022, when No 1 busheling in Chicago sold for $760 per ton, which was a $145 premium to shredded scrap that was selling for $615 per ton.
With shredded higher priced than busheling, either busheling must increase more than shredded or shredded has to decrease more than busheling.
A seller into the Chicago area said markets are still in correction territory, so he suspects shredded is overpriced and is facing the fate of a bigger drop to restore the normal $25 to $40 per ton spread between the grades.
“Shredded is higher priced to other grades and mills are pushing for more busheling because of the price of shred,” said the seller into Chicago.
“Shredded is more vulnerable than prime (No 1 busheling). There will be pushback but shredded will move lower to restore the spread. Prime has to reverse course to become higher and it is my experience that the prime-shred inverse lasts 4 months, and we are about there,” added the seller to Chicago.
A mill agent in the Arkansas-Tennessee region said he is reconsidering his monthly melt requirements since busheling has fallen under shredded scrap. He typically buys less busheling than shredded but said it may make sense to load up on No 1 busheling.
One caveat facing the return of No 1 busheling selling for a premium is that it remains in oversupply. It would take a couple months of mills melting more busheling than shredded to eat up the overhang of busheling.
I am having a hard time selling busheling because one producer doesn’t want it and a second producer’s offer is too low to eke out any profit
A second seller into Chicago said he is facing trouble selling material. “I am having a hard time selling busheling because one producer doesn’t want it and a second producer’s offer is too low to eke out any profit.”
An inversion of traditional price spreads was a common theme in the steel raw material markets in 2022.
The historical delta between pig iron and US No 1 busheling was one such relationship flipped on its head after a conflict between Ukraine and Russia sent US domestic steel mills scrambling for quality grades of scrap to offset the supply shortages — forcing prices of busheling to trade at a premium to the traditionally more expensive pig iron.
As the war intensified in the early part of the spring, supplies of pig iron from Russia and Ukraine were choked off. Shipments from the region are critical for US buyers as they account for around 61% of imports into the country.
Mills scurried to Brazil to buy whatever pig iron they could, but Brazilian pig producers did not have additional availability — tightening the pig iron market and, in turn, making higher-yielding scrap grades like No 1 busheling more valuable.
With demand surging, the Chicago market for No 1 busheling shot up an unprecedented $190 per gross ton on March 9 from the month prior to $685 per gross ton. At the same time, pig iron prices were increasing, but not at the same rate, and this resulted in busheling trading at an unusual $30 per gross ton premium compared with Fastmarkets’ pig iron, cfr Gulf of Mexico, price that was assessed at a midpoint of $655.35 per gross ton during the same period.
This unusual delta also occurred in the early part of the year when No 1 busheling in Chicago was trading at a $36.5 premium to pig iron in the first week of January, largely driven by slack demand from US mills amid thinning order books and an overhang of scrap.
Copper discounts have remained largely stable for the majority of 2022, despite fluctuations in Comex pricing. Copper scrap No1 copper, discount, buying price, delivered to brass mill US was unchanged from January 26 to October 4 at 9-11 cents per lb.
However, between January 26 and October 4, the most-active December delivery Comex copper reached a high of $4.9375 per lb on March 4, a low of $3.2115 per lb on July 14, and settled at $3.49 per lb October 4.
Sources throughout the year have said that volatility in Comex was leading to less reactionary discount rates, and that pricing was more impacted by changes in demand levels. While the majority of the year saw depressed domestic demand, fluctuating export demand, notably to China, has caused some movement of copper discount spreads and changing brass scrap prices.
China and the United States are different in so many ways, but [both] react to increasing demand similarly
“China and the United States are different in so many ways, but [both] react to increasing demand similarly,” one market source said.
If there is a decrease in Chinese demand, the source said, there is a “glut of copper worldwide,” and this effect will be felt more predominately in the US “as we rely on them quite a bit.”
According to the most recent US Commerce Department data, between January-August 2022, US exports of copper scrap totaled 701,162 tonnes, up 6.22% from the same 2021 period.
China’s imports increased 36.53% year-on-year, and its market share of US copper scrap exports to 31.22% in 2022, up from 24.29% in 2021.
“It is hard to believe the 300 series stainless scrap markets have gone from so high to so low, and the London Metal Exchange (LME) cash nickel is still above $20,000 per tonne ($9.07 per lb),” said one scrap dealer.
Fastmarkets 304 stainless consumer price has fallen to 64-65 cents per pound in October, from 95-97 cents at the start of the year.
The intrinsics of pricing in austenitic grades of stainless are experiencing a major change as nickel remains strong, but dealers are complaining of lower prices from processors.
At the same time, consumers continue to increase their discount on nickel, causing lower prices from the consumer to processors.
It has been a challenge for scrap dealers and scrap processors to try to buy material with financial spreads to make a profit in this current world of unknowns.
LME volatility, ferrous scrap continuing its weakness and the annual ferrochrome benchmark taking a large drop for the fourth quarter of 2022 all complicate the situation.
This means the intrinsic values of stainless indicate a stronger market especially based on nickel prices, but with the large discounts applied by the consumers, the values or spreads for profitably disappear.
Until demand for raw materials returns, the market will continue to be soft and many only project the return to a more normal market by the second quarter of 2023.
Curious about what’s next for steel scrap prices? Join leading scrap industry experts and make new connections across the supply chain in Dallas at Scrap & Steel North America on January 17 – 19.