2017 REVIEW: India’s ferrous scrap market choked by new regulations, competition from Pakistan

The Indian imported ferrous scrap market spent much of 2017 under pressure from new government regulations and the ability of Pakistani counterparts to pay higher prices.

The Indian import ferrous scrap market spent much of 2017 under pressure from new government regulations and the ability of Pakistani counterparts to pay higher prices.

The introduction of the goods and services tax (GST) in July, coupled with the aftereffects of the demonetization policy that was introduced in November 2016, has disrupted demand for Indian finished steel and scrap this year.

Meanwhile, a plentiful supply of cheaper local direct-reduced iron (DRI) and a burgeoning stock of domestic scrap has meant that when Indian mills have needed to purchase raw materials, they have been largely absent from import markets.

With Pakistan possessing fewer local alternatives to imported scrap, buyers in that country have been able to pay higher prices for material such as shredded scrap from the United Kingdom and Europe.

Given that freight rates to Pakistan’s Port Qasim are similar to those required to ship into Nhava Sheva in India, offer prices for containerized shredded scrap to India have been too high for all but the largest specialist steelmakers for most of the year.

The average Metal Bulletin India import shredded scrap price from January 1 to December 1, 2017, was $309.45 per tonne cfr, up from $238.45 per tonne cfr in 2016.

“In India, buyers are confused by the GST. DRI availability is high in India, but Pakistan doesn’t have it, so Pakistan needs scrap,” one Middle East-based trader said.

“International prices have gone up without India having any impact for some time now,” one UK-based seller said.

The inability of most Indian mills to pay competitive prices has resulted in a significant drop in scrap imports to the country this year.

Shipment volumes of ferrous scrap to India dropped by 31.56% year on year to 2.58 million tonnes in January-July 2017, compared with the 3.77 million tonnes imported over the corresponding period of 2016, according to statistics compiled by the Bureau of International Recycling (BIR).

When looking at imports of EU-origin scrap alone, volumes into India dropped by 41.5% year on year to around 355,000 tonnes in the first six months of the year, according to the BIR. Pakistani imports of EU-origin material outstripped India and reached 507,000 tonnes over the same period.

Uncompetitive India
One example of the chasm between India and Pakistan import prices in 2017 came on Friday August 18, at the height of the summer upswing in ferrous scrap prices.

Metal Bulletin’s Indian import shredded scrap index was $338.09 per tonne cfr, while Pakistani mills were heard to have been open to paying up to $350 per tonne cfr Port Qasim.

“Bangladesh and Pakistan are hot right now, which is dragging up Indian prices,” one India-based seller said at the time.

Due to business concluded by Pakistani mills, offer prices increased to unsustainable levels for Indian consumers, forcing them out of the market, another India-based seller said. “At these offer levels, India will not dream of buying. They will have to raise their bid prices.”

Spread from Turkish prices
Between January and December of this year, Metal Bulletin’s Indian import price for a containerized 80:20 mix of No. 1 and No. 2 heavy melting scrap enjoyed a better average price over the Turkish bulk import price for similar material for just three months.

This came in March, April and May, when the Turkish market suffered a sharp downturn due to low demand.

In January-December 2017, the average price for Metal Bulletin’s assessment for containerized 80:20 heavy melt into India was $274.16 per tonne cfr Nhava Sheva. That figure is $11.06 per tonne below the $291.50-per-tonne cfr average price for Metal Bulletin’s bellwether bulk ferrous scrap index for 80:20 heavy melting scrap arriving in Turkey from northern Europe.

That spread is is largely stable from the $11.61-per-tonne average spread in favor of the bulk material imported into Turkey last year, but it represents a dramatic change from the $5.43-per-tonne average premium enjoyed by the Indian price in 2015 and the $3.92-per-tonne premium for the material imported into India in 2014.