4. So quickly, what is scrap? Steel is a ‘multi-cycling’ material It is a “greener” steel feedstock Over 1500kg of iron ore, 400kg of coal and 55kg of limestone is saved for a tonne of scrap used. It is the world’s most recycled material. Electric Arc Furnaces (EAFs) can be charged with between 90-100% of scrap. Basic Oxygen Furnaces (BOFs) can be charged with up to 30% scrap. PRIME material is offcuts/pressings from manufacturing – from ‘new’ steel. OBSOLETE material comes from ‘old’ steel – used construction, manufacturing steel etc.
5. Not the most “sexy” of raw materials, but vitally important to world steel production No. 1 Busheling Heavy Melt Scrap Plate and Structural Scrap Shredded Scrap
6. Scrap is an important resource for the steel industries of many countries… EAF Production - Many countries have a higher production of EAF (scrap based) production than BOF. Countries with >50% EAF production Source: SBB Forecaster
7. …as can be seen in the cost breakdown for an EAF mill 83% Source: SteelConsult analysis
8. Though most of the worlds available scrap is based in the West, demand will come from the East… EAF Production – Crude steel produced via EAF (2010) Source: SBB Forecaster
9. …Where, by 2020, 44% of all EAF based crude steel will be produced Source: SBB Forecaster
10. But coming back to the present, we need to look at the world’s scrap “pinch points” US Midwest: 69mtpa EAF industry inland has to compete with the East coast exporting docks for material. Rotterdam: Dockside exporter material is competed for by both Spanish and Italian importers, as well as Turkish importers. Turkey: The world’s largest scrap importer, Hoovers up scrap Handymax-size vessel loads (circa 35,000t each) from the EU, USA, Middle East and Black-Sea bordering countries. India, West Coast: The world’s most liquid containerised scrap import market. Like Turkey, sources from a variety of locations, but in smaller quantities. North Asia: China, S. Korea and Taiwan form a cluster of scrap importers in the largest steel producing region of the world.
12. International demand for US scrap has grown strongly over the past 10 years US Ferrous exports Conservative growth of 10% pa Million tonnes Tenfold increase in 10 years Est. 2011 Source: USITC
13. Whilst domestic scrap consumption has been steady US ferrous scrap consumed domestically Million tonnes Source: US Geological Survey
14. Leading to a potential deficit in available scrap from 2016 onwards with implications for the domestic price of scrap Million tonnes US$/l.t Tenfold increase in 10 years Source:SBB, TSI and RMDAS
15. Indeed, the last year has seen quite a bit of volatility in the market. When you look back even further, you see bigger swings % Change week-on-week 2010 - 2011 Swings of 15% Source:TSI % Change month-on-month 2010 - 2011 Swings of 70% Source:SBB
16. Which will affect countries such like Turkey, the largest consumer of US ferrous scrap US Exports H1 2011 Source: USITC
17. You can also see the close price movements of scrap alternatives in the local market US$ Source:SBB
19. Indeed, Turkey is the largest importer of ferrous scrap in the world, with just over a fifth of cross-border trade Top 10 importers 2010 Cross-border trade 2010 Source: BIR Source: BIR
20. And it isn’t about to stop importing scrap, with its EAF melting capacity increasing 21% by 2015 Million tonnes Source: Colakoglu
21. Additionally it is a lead indicator for long products, leading the FOB Wire mesh price by about a month US$/t YTD 2011 – Average 30% of Long product imports are sourced from Turkey 2010 – Average 47% of Long product imports are sourced from Turkey Source: SBB
22. It is an important regional marker $USD/t All prices $USD/t Turkish Price: TSI, all other prices SBB
23. Perhaps unsurprisingly given Turkeys status as a steel exporter, there is a good relationship with the import price and rebar around the world 75% Correlation to SBB’s Rebar world price US$/t Source:SBB, TSI
25. Japan is a regional exporter, with just over a fifth of new arisings off to the export docks 23.8mt Source: Scrap Exports, customs data.
26. To be consumed by the region’s steel powerhouses Chinese EAF production more than doubled in ten years. mt Source: SBB Capacity Book
27. China sees big swings in its imports Scrap imports 2005-2010 mt 250% 67% Source: BIR
28. But will be an important player in the scrap market in the years to come mt Source: SBB, TSI, BIR
29. With future demand squeezing regions like the US mid-west US exports to Asia Future EAF production Source: USITC, SBB, TSI
30. So what now….? Scrap markets could see less downside than in the past. But don’t fear China – it is an opportunistic buyer, rather than a compelled buyer. Latin America, whilst not directly involved in the scrap trade, could do well by taking heed of market developments Future capacity additions will need to be carefully matched to domestic scrap availability as the seaborne market becomes tighter Scrap alternatives exist however do not have a liquid seaborne trade TSI will add an Asian price series to complement its Turkish, US and Indian price series
37. Coming up… TSI Scrap Event 2011Thursday 17 November, New York City Topics will include: Global scrap market in 2011 and beyond: key drivers and pricing trends US scrap market—new dynamics The international scrap market—review of Turkey Strategies to manage scrap price volatility—role of swaps, hedging and clearing Derivatives: lessons from other sectors Why would I use derivatives? Register your interest with us today!
38. Thank you for your attention! Please visit us at our stand JarekMlodziejewski Jarek@thesteelindex.com Tel: +44 207 645 9415
