Robust construction, shipbreaking activity spur growth in GCC steel scrap markets

There is a real sense among participants that the ferrous scrap markets in Gulf Cooperation Council (GCC) nations may be getting ready to really heat up

Steel production in the Middle East rose by the fastest pace of any region in the world in the first two months of 2023 — up by 17.1% year on year over the period, according to the World Steel Association.

Not only does that performance follow impressive growth recorded in 2022 — a rise of 7.1% year on year — but it also comes at a time of consistent decline in steel production, both last year and this year to date, in other regions of the world, such as the EU and the US.

And the trend is only set to continue throughout this year, according to Oxford Economics (OE) downstream industry forecasts, with GCC construction markets among the highest forecast growths across the world in 2023.

The UAE is forecast to grow its construction output by 6% year on year in 2023, and Kuwait’s is forecast to rise by 3%. Indeed, of the countries covered by OE in the region, only Qatar is forecast to drop this year (-4%), following its FIFA World Cup-inspired increases in 2021 and 2022.

By comparison, the Eurozone and the US are slated to have construction output falls of 1% and 5% respectively this year, according to OE.

Middle Eastern nations also continue to pay among the highest import prices for steel in the world. Fastmarkets’ price assessment for steel hot-rolled coil import, cfr Saudi Arabia averaged $780 per tonne in March 2023, while the assessment for steel hot-rolled coil import, cfr Jebel Ali, UAE averaged $773.13 per tonne.

Those compare with March averages of the assessments for steel hot-rolled coil import, cfr Vietnam and for steel hot-rolled coil import, cfr main port Turkey at $682.5 per tonne and $758 per tonne, respectively.

Steel scrap bans in Middle East to continue

Although the Middle East is principally a consumer of locally made direct-reduced iron (DRI) in its steel industry, steel scrap is also an important — and growing — input in the region, particularly in the face of growing mill capacity in countries such as Saudi Arabia.

As a result, steelmakers across the region are making a concerted effort to consume more ferrous scrap. For example, the UAE has long had restrictions on the exports of scrap but has recently cracked down more firmly on attempts to circumvent these rules, partly to keep more scrap within the country amid higher consumption of scrap required at UAE mills, sources told Fastmarkets.

This has led to increasing difficulty and lead times in getting containers of non-ferrous scrap out of the country, with Dubai port authorities on high alert to check whether steel scrap is being shipped out of the nation, scrap trading sources said.

Most countries in the GCC over the past 15 years have banned scrap exports — mostly ferrous.

“Most countries in the GCC over the past 15 years have banned scrap exports — mostly ferrous. They have their own consumption and there are not many raw materials around,” Jawed Ahmed, chairman and chief executive officer of Saudi Arabia-headquartered Al Qaryan International Trading, said at the recent Metals Recycling Confex, held at Dubai’s Ritz Carlton Hotel on March 15.

“They don’t want to import scrap because they have [their own supply] and they simply say ‘ban scrap [exports]’ to stay in the country, so we can get those materials,” he said.

“[This way], the industry can survive and GDP can increase. India and China — what are they doing? They keep their scrap in their country — they want to export only value-added products,” he added.

The growing consumption of steel scrap in the Middle East will likely mean the need will rise for bespoke price indexation solutions for Middle Eastern steel scrap markets in the future, according to Ahmed, particularly at a time when countries in the region start importing more material.

The UAE alone currently requires around 2.5 million tonnes of scrap per year, according to Satyajit Roy, director of trading at Netherlands-headquartered ethical shipbreaking firm Elegant Exit Company (EEC).

But despite this, the Middle Eastern steel industry currently has no access to a “reliable and predictable” supply of vessel-generated steel scrap, nor does it have access to any tailored scrap price index, he said.

Until now, market participants in the GCC have tended to use the Turkey import steel scrap prices as their main ferrous scrap market reference, together with 65% Fe fines iron ore, panelists at the Metals Recycling Confex said.

GCC shipbreaking potential

EEC aims to recycle 25 vessels in 2020-2027 from two facilities, resulting in around 750,000 tonnes of steel scrap being generated per year, according to the firm’s website. Scrapping a 16,000-deadweight tonnage (dtw) vessel produces 15,000 tonnes of recyclable material, according to Roy.

Most shipbreaking occurred in Bangladesh in 2021, with 254 vessels coming to the end of their lives there, followed by India with 210 vessels and Pakistan with 119, according to Roy. Greece broke up 41 vessels while the UAE recycled 60 vessels, he said.

Around 2,000-3,000 vessels will need to be recycled over the coming years around the world, given there is now “lots of tonnage at sea,” Roy said.

While the South Asian yards will often pay higher prices for end-of-life (EOL) ships than companies in the developing world, Roy noted, there are a number of regulations in place to encourage the responsible recycling of ships at more responsible yards.

These include the EU Ship Recycling Regulation, which came into force in 2018 and is applicable to all EU-flagged vessels, and which says all ships must be recycled on an impermeable floor. The UAE’s upcoming Ship Recycling Regulation is expected largely to mirror the existing EU rules.

EEC oversees shipbreaking using a system of dry docks and protected slipways to ensure that oil and other contaminants do not seep into the earth, according to Roy, practices that are not commonly adhered to at major South Asian shipbreaking yards along the beaches of Alang, in India, or Chattogram, in Bangladesh. Another company moving into the same space is responsible vessel recycling firm Wreckdock, based in Saudi Arabia’s Al Jubail.

For EEC, the green approach to shipbreaking does not end with dismantling the vessel. While much shipbreaking scrap gets melted down in furnaces in nations like Turkey, many EOL ship plates can also be reused in places like Bangladesh and India, through heating and re-rolling them without melting the material.

“[EOL ship] plates can be used as semi-finished products. We don’t want to melt materials unless it is absolutely needed,” Roy said, adding that although the reused plates should not be used in buildings, they could easily be used for items such as tractor parts.

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