BIR LONDON: US scrap market still depends on Turkey after Section 232

The steel scrap sector in the United States still depends on exports to Turkey, a member of the Fastmarkets research team said during the ferrous session at the Bureau of International Recycling (BIR) conference in London last weekend.

This dependence persists despite the changes in the international markets created by the US’ imposition of its Section 232 tariffs on imports of steel products, Lee Allen said at the conference on Saturday October 6.

Scrap prices could have risen further but they had been left behind in comparison with the sharp rises seen in the prices of finished steel products.

Despite the later complication of separate political and economic issues, US exports to Turkey increased to 2.04 million tonnes in January-July 2018, up by 26.3% compared with 1.61 million tonnes in the first seven months of last year, Allen said.

Domestic steel prices in the US had “sky-rocketed” even before the Section 232 tariffs were introduced at a rate of 10% on imports of aluminium and 25% on steel products.

The US domestic price for hot-rolled coil reached a peak on July 5 of $1,011 per tonne fob mill ($916.80 per short ton fob mill).

This followed a 34.1% increase in US domestic HRC prices in the six months from November 8 last year to March 8, 2018. But the price peaked in the summer and has moved downward since then to $825.60 per short ton on October 4.

Domestic US rebar prices only rose by 11.6% over the same period, and have remained unwaveringly flat at $783 per tonne ex-works ($700-720 per short ton fob mill) since April 18. There was a drop in imports at the start of 2018 and a consequent rise in local shipments with more domestic material being produced.

Unlike the rebar market, domestic shipments of HRC declined, which contributed to the spike in local prices, and consequently attracted imports at competitive prices. US HRC import volumes rose to 792,401 tonnes, up by 40.8% year on year, while there was a drop in local shipments to 6.67 million tonnes between January and April, down by 3.7% year-on-year.

But scrap prices were being left behind in comparison to finished steel products, suggesting that scrap prices appear to be undervalued.

Other factors holding back the scrap prices may have included the more competitive prices for iron metallics. Consumption of pig iron also rose at a faster rate than scrap, because blast furnace output began to accelerate in the second half of the year, compared with the growth in output from electric-arc furnaces, which tend to make more use of scrap.

A rise of $39 per tonne in the price spread between Turkish import prices for HMS-grade scrap and export prices for rebar so far in 2018, compared with the corresponding period in 2017, shows that Turkish mills have been able to increase their mill margins, excluding other costs, despite the problems in the market.

This reinforced the conclusion that scrap prices could have risen further, Allen said.

European markets

Europe has also been affected by the Section 232 tariffs in the US and by the more recent economic trouble in Turkey, although the effects of these factors have varied country by country.

Net UK scrap exports between January and July 2018 were much higher than those from Germany, at 4.55 million tonnes and 1.43 million tonnes respectively. Italy does not rely on exports so it was much less affected by developments in Turkey. Net Italian scrap imports were 2.15 million tonnes in January-May 2018.

The UK scrap price has been affected much more by the issues in Turkey, but German and Italian scrap prices have been fairly stable in comparison.

The economic uncertainty in Turkey has led UK scrap merchants to seek other markets, and they have tried to diversify their customer base to take in countries such as Egypt and Morocco.

Like the US, however, the UK remains dependent on Turkey. There was a percentage rise in UK scrap shipments to Turkey of 3.1% between January and July 2018, to 1.74 million tonnes. This was greater than the overall rise in UK scrap exports, which went up over the same period by just 0.4% to 4.72 million tonnes.

Even though US scrap prices under-performed, they still did better than European scrap prices. But as a result, European material is now more competitive in countries such as Bangladesh.

There have also been imports of high-grade scrap from Europe into the US because of the high prices in the local US markets. This has been attributed to a rise in the spread between the prices for shredded and HMS-grade scrap this year – this figure is usually $5 per tonne but it reached a high of $14 per tonne in June before falling back to a more normal level.

Exports of European scrap to the US have also been linked to resurgent prices for graphite electrodes, such as are used in electric-arc furnaces.

Allen also presented a forecast of crude steel output during the session. 

The capacity utilization rate for US crude steel producers so far this year, according to the American Iron & Steel Institute (AISI), is 77-78%. It has not reached the goal of 80% for the year as a whole, although on September 9 it reached 80.2% before falling to 79.4% the follow week. But this has probably come too late in the year to make a significant difference.

The steel import tariff in place in the US, and the later introduction of the retaliatory tariff rate quotas in the EU, were likely to lead to stronger growth in steel output in the US compared with industrial demand. This was because import volumes were likely to be restricted, thus stimulating more domestic production in the US, Allen said.

According to the Fastmarkets research team, the EU is expected to reverse its slowdown in the growth of steel production for the end of this year and the start of next year, on an improvement in industrial output and the effects of the EU safeguarding quotas on imports.

Ferrous scrap prices were expected to remain stable or to rise toward the end of the year in the US, in Europe and in Turkey according to Fastmarkets research, due to lower collection rates, with US yard inflows already reduced and further strain on collection rates likely.