Happy New Steel Year! Let’s hope so was the hope filled prayer, after the severe downfall towards the end of 2014. Many market players are no doubt entering 2015 with a certain sense of nervousness & apprehension as the year 2014 was a topsy-turvy one. But, having said this, the year 2014 started with what could be described as a ‘false sense of security’ after an excellent & healthy 2013. Due to this downward trend, market players have taken up a defensive mode and are in a “Watch & Wait Policy” having their fingers crossed.
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(Source: www.platts.com/IM.Platts.Content/ProductsServices/Products/PlattsSteelRawMaterialsMonthly.pdf)
At the start of any calendar year it is a real challenge to gauge where we are going to be. Just after the holidays have happened, we are not sure where they are going to go next, and people are really hesitating to throw their cards out for the rest of the year. That leaves us in bewilderment as to what is going to happen and where we are marching forward for not only the 2015 but also for years beyond that. As per my critical analysis, I don’t see the steel 80:20 scrap metal market really bouncing back throughout the rest of 2015. The market has really nosedived and has not given us much encouraging news to really be happy about.
As per my market research, the global statistics of world steel for the first three months of 2015 isn’t a healthy one ’coz it confirms 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 usage in March this year was 71.6%, or four percentage points lower than in March 2014.
Figurative analytical statistics 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%).
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).
During 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 cargos. 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.
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(Source: http://www.mrw.co.uk/Journals/2015/07/10/b/s/s/BIR.pdf)
During this analytical research, I found in the period from January-March 2015 figures 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). It is noteworthy that, India was the world’s second-largest steel scrap importer in the first quarter of 2015. 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.
The current Indian political scenario which is basking under the NAMO wave (Narendra Modi), the country has regained its optimism regarding economic growth (it was just 4.7% in 2013 but it is targeting 6-6.5% GDP in coming years); it has begun to invest in infrastructure again; and hopes that India will treble its steelmaking capacity to 300 million mt/year by 2025 have been revived. State-owned companies, such as Steel Authority of India and iron ore miner NMDC are making the right noises about growing their respective production capacities in line with the ramp-up to 300 million mt/year. But everyone knows from often bitter experience that it won’t be easy for India to achieve its steel ambitions. Only time will tell if Modi could render some help to the country. Already, there are some rumors that progress is happening more slowly than hoped, therefore it seems the Modi honeymoon period will not last much longer.
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(Source: http://www.mrw.co.uk/Journals/2015/07/10/b/s/s/BIR.pdf)
My inquisitiveness & inner quest through this research lead me to understand that, there are various underlying factors which are holding the key to this current market trend for HMS1&2. The sharp downfall of crude oil price in the global market, lack of demand in prior developing countries, slowing down of consumption, unstable economy i.e., fall of U.S $, Euro & Chinese Yen and most of all change of political scenario in Europe.
In conclusion, if Iam a market player, I would accept the present given scenario and with an optimistic outlook carry on with the business before the situation worsens for the worst. It is a tough decision to make, it is a challenge but much better than sit down and complaint over the spilt milk. There is always a silver lining over the dark clouds.