FOCUS: Steel scrap export bans curb supplies for India, Pakistan

Bans on the export of ferrous scrap by various key suppliers of material to India and Pakistan have restricted import flows at the same time that demand has been returning to these markets, pushing prices higher, Fastmarkets has learnt.

Demand for imports of steel scrap fell sharply when India went into its strict lockdown during March in response to the Covid-19 pandemic. Trading effectively came to a halt at that time.

At the same time, various countries that traditionally have supplied scrap to India and Pakistan introduced export bans to protect their own supply of domestic material.

Bans by UAE, South Africa
One of the first countries to bring in such a scrap export ban was the United Arab Emirates. Its economy ministry introduced the measure in May for an intended four months, but in September it extended the ban for a further four months.

India imported 1.025 million tonnes of UAE scrap in 2019, according to statistics from the International Steel Statistics Bureau (ISSB). This was equivalent to 18.3% of the total 5.6 million tonnes India imported in 2019.

The Gulf state shipped 312,503 tonnes to India in January-May this year, down from 567,634 tonnes over the corresponding period last year.

Another major buyer of UAE-origin scrap is Pakistan, which gets around 20% of its steel scrap imports from the Arab country.

When India came out of lockdown, and steel mills increased their output and raised their utilization rates, demand for imported scrap started to increase once more at a time when further scrap export bans were being applied elsewhere.

South Africa banned scrap metal exports for two months from July 3.

India is a key destination for scrap exports from South Africa, which was the fourth-largest supplier of scrap to the country in 2019 at 306,166 tonnes. This was up by 22.5% year-on-year, ISSB data showed.

But in the first five months of 2020, South Africa shipped only 163,827 tonnes to India, compared with 194,417 tonnes over the same period in 2019.

Other Asian regions imported 80,258 tonnes of South African scrap in 2019, with Pakistan taking 60,554 tonnes of this.

“Some areas always had a ban on steel scrap [exports] but they found a loophole. They wanted to mitigate the effects of the [Covid-19] pandemic and shield local industries by banning exports of raw materials,” an India-based trader said.

“Scrap generation post-[lockdown] is less, down by 60-70% from [some] suppliers. What was 100 tonnes per month is now 60-70 tpm,” he added. “We are finding it an issue [because] buying has become difficult. Before, it was pick-and-choose; now, we are trying to expand our sourcing, but it’s hard to get good quantities, post-lockdown. We are chasing our suppliers every day.”

At the start of November came news of stricter enforcement of existing scrap export restrictions from Kuwait, which usually exports HMS material. Market sources said that restrictions had been in place since 2019 but were now being enforced more strongly.

US, Brazil exports up
While some countries decreased their supply of material to the export market, others increased theirs, including the United States and Brazil.

Despite Covid-19-related issues in the US earlier this year, the country managed to increase its shipments to Pakistan during the first five months of 2020 to 235,016 tonnes. This was up from 175,265 tonnes in the same period the year before, statistics from the US Census Bureau showed.

Brazil increased its exports of steel scrap in the first half of the year, due to weak domestic demand, and India purchased significant volumes of this material, although the long shipping time was a burden for buyers. Pakistan was also a buyer of this material.

Ferrous scrap exports from Brazil totaled 316,145 tonnes in January-May 2020, up by 63.3% from 193,610 tonnes in the corresponding period of 2019, according to data from the country’s ministry of economy.

Brazil’s exports to India grew by 89% year-on-year to 109,743 tonnes in January-May, from 58,072 tonnes. Its exports to Pakistan over the same period rose by 81% to 34,608 tonnes, up from 19,120 tonnes.

But export volumes have now begun to fall with domestic demand in the South American country reviving.

Consequences for prices
In India, prices for shredded and HMS grades of steel scrap have both returned to their pre-Covid-19 levels or higher.

Fastmarkets’ weekly steel scrap shredded index, import, cfr Nhava Sheva, India, showed a year-to-date low of $243.49 per tonne on April 3, following the introduction of a strict lockdown in the South Asian country. Since the markets have reopened, prices have recovered, reaching a year-to-date high of $355.76 per tonne on November 20.

“There is a huge shortage of material. It’s not going to India, it’s going to Thailand, Vietnam and other Asian locations,” a seller said. “There is not much available. Yards are either holding on to material or are oversold. The price peak is now, and the [religious] festival season is coming, so the market might slow down. Scrap is like gold now.”

India’s largest steel market participants all reported their highest ever export sales in several months of this year due to their attempts to find new buyers; returning domestic demand and a mild monsoon season also helped to support the market for finished steel products.

Prices jumped on a combination of factors
including the continuing shortage of material as well as logistical issues related to poor availability of containers and rapidly rising freight rates.

“The supply-demand gap has increased,” a mill source said. “The lower availability of containers should ease but the shortage of material won’t ease [any time] soon. If the logistics issues can be resolved at least, there will be some stability.”

“There is a huge shortage of containers and vessels,” a buyer said. “The logistics of goods is a much bigger problem than the availability of material. If lockdown continues in Europe, we will start to experience shortages of scrap, and it will reflect in prices. We have domestic sources of [substitute] material such as scrap and [direct-reduced iron], but I am not sure about countries such as Pakistan.”

The price of steel scrap, HMS 1&2 (80:20 mix) import, cfr Nhava Sheva, India was at a year-to-date low of $215-230 per tonne on March 27 before recovering to a year-to-date high of $330-345 per tonne on November 20.

The HMS price has been significantly affected by the export bans, with material from the UAE, Kuwait and South Africa making up the top end of the price range due to its good quality.

“In Kuwait, there were existing restrictions but there was a way around them. Now, for the time being, there are no exports,” a market participant said.

The price spread for India-origin HMS scrap averaged $20 per tonne in January and $15 per tonne in February. After the lockdown, however, this narrowed to $13 per tonne in July and $11.25 per tonne in August when the various scrap bans were in place. It then widened to $15 per tonne in October and November.

Material from the UK has typically commanded prices the lower end of the range but it has enjoyed firmer pricing in recent months because of reduced scrap generation - an effect of the national lockdown in March.

Scrap generation
Scrap generation in the UK remans 40% below pre-lockdown levels, one market source said, with availability likely to decrease further because of seasonal winter factors as well as a second lockdown period.

“Pakistan and India both have tight supply [and] there are more players coming to the table wanting material,” a UK-based seller said. “[Scrap material] generation is definitely still below pre-[lockdown] levels. Volumes weren’t that great before Covid-19 because of the winter season and the [parliamentary general] election [in December] last year. The market had already quietened down.”

But a second market source described the status quo as an opportunity to ship more material to countries such as India and Pakistan thanks to robust inventory levels although it would expect a 25% drop-off from the demolition and automotive sectors over the Christmas period.

The UK - the second-largest supplier of ferrous scrap to India - shipped 800,716 tonnes there in 2019, according to ISSB data. In January-March this year, the UK exported just 618,520 tonnes of scrap metal compared with 2,073,716 tonnes in the corresponding quarter of 2019.

Of this, India took in 49,870 tonnes, a sharp drop from 276,495 tonnes in the first three months of 2019, while Pakistan imported 61,226 tonnes compared with 192,164 tonnes in January-March 2019. Pakistan is the second-largest buyer of UK scrap - it took 993,000 tonnes in 2019.

Fastmarkets’ weekly calculation of the steel scrap shredded index, import, cfr Port Qasim, Pakistan was $355.30 per tonne on November 20, up from the index’ inaugural calculation at $330.73 per tonne at the start of the month.

Worldwide reset
“The market is affected by [much] less supply from the UAE, which I think is not even doing 50% of its usual exports. South Africa is not exporting, Kuwait is not exporting, and Brazil’s domestic [sector] is very strong. We are in a similar position to other countries,” a market source said.

“The increases in Turkey are influencing customers’ decisions, as well as scrap inventories being too short in Pakistan,” he added.

In addition to the various scrap export bans and seasonally lower scrap generation, China is now looking to restart imports of steel scrap into the country in 2021. This follows the introduction of new domestic scrap classification standards, which could further reduce availability of material on the global markets.

Japan and the United States, both of which supply material to India, could restart sales of their material to China.

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