Indian infrastructural initiatives mark country as rising hotbed of ferrous scrap demand

With increasing volumes of shredded scrap being exported from the US West Coast, Fastmarkets is launching a shredded scrap export index to balance its ferrous scrap exports offering from the US East and West Coasts

India has re-emerged as a significant importer of US-origin ferrous scrap in the latter part of 2022, precipitated by a favorable price environment in the US export market and soaring prices for domestic scrap. The region is in the throes of a steel-intensive infrastructural investment boom, correlated to the country’s growing middle class and the associated increase in consumer spending, which is driving the construction and automotive sectors in the country. The Indian government has launched a series of steel-supportive policy initiatives in recent years, directly linked to the announcement of production and investment ramp-ups — including scrap-intensive electric-arc furnace (EAF) developments — among the region’s major steel producers.

India is an increasingly significant import hub for US material shipped from the West Coast, and scrap importers in the country have established a preference for shipments of shredded material in recent years, increasing focus on the grade that makes up 33% of the US domestic market. Shredded scrap is lauded for its versatility because it can be utilized in the production of long-steel products such as rebar and flat-rolled products such as hot-rolled coil. India produces long and flat steel products and has been a net importer and exporter of both.

Indian scrap buyers are able to efficiently process packages of shredded material due to the ready availability of low-cost labor, making the grade an attractive proposition for its high metallic yield — estimated at 92% — and its ability to be efficiently loaded into cargoes.

An arbitrage opened between Indian domestic and export scrap markets in the fourth quarter of 2022. Exorbitant domestic scrap prices have effectively forced Indian mills in need of material to seek tonnages from overseas markets, where prices were competitive. Toward the end of the year, the arbitrage window closed; the emergence of cheaper Chinese billet imports in lieu of finished products signaled a weakening in global steel markets. Domestic scrap prices in India weakened in turn.

Fastmarkets assessed the steel scrap HMS 1&2 (80:20), export index, fob Los Angeles at $342.50 per tonne on September 28, 2022.

Shredded scrap typically trades at a $5 per tonne premium to heavy melt shipped from the West Coast, which would mean the price for shredded material can be assumed to have been $347 per tonne fob, in line with Fastmarkets’ calculation of the heavy melt FOB Los Angeles index at that time.

CFR prices for these grades to India were heard at $410 per tonne and $420 per tonne respectively over that period.

Fastmarkets assessed the price of steel scrap HMS 1&2 (80:20 mix) import, cfr Nhava Sheva, India at $420-445 per tonne on September 23, 2022.

The calculation of the steel scrap shredded, index, import, cfr Nhava Sheva, India was at $442.50 per tonne on September 27, 2022.

The United States — a net-export scrap market — exported 1.31 million tonnes of ferrous material in August 2023, according to the latest data from the US Census Bureau. Of this figure, the majority — 598,846 tonnes — was No1 heavy melting scrap. Shredded scrap comprised 436,000 tonnes of that total and No2 heavy melt and plate and structural scrap a lesser 73,461 tonnes and 49,780 tonnes respectively.

Turkey remained the largest importer of US scrap over the period, importing 1.35 million tonnes of No1 heavy melt, 253,570 tonnes of No2 heavy melt — deep-sea cargoes to the region typically comprise an 80:20 ratio of clean and coated material — and 182,904 tonnes of shredded material.

Mexico ranked second, importing1.06 million tonnes of No1 heavy melt, 53,038 tonnes of No2 heavy melt and 707,148 tonnes of shredded material. Mexican buyers typically ship their material by truck and rail over the border from the United States and are generally known to buy deep-sea cargoes only when prices are extremely competitive.

India by contrast bought a lesser 154,089 tonnes of No1, 12,933 tonnes of No1 and 128,457 tonnes of shredded scrap. But, focusing on shredded scrap in line with the region’s preference, India’s consumption of the material has soared since they consumed just 73,261 tonnes in the full year 2021. This figure ramped up to 741,277 tonnes in the full year 2022.

Indian steelmakers have imported 268,175 tonnes of shredded material in 2023 to date so are therefore on track to come in under the prior year’s figure, but prospects are healthy amid the ramp-ups expected of the country’s steel production, particularly on an EAF basis. Demand for scrap prompted by this increase in production is expected to outstrip supply in the Indian domestic market, enforcing mills’ commitment to importing material. There is also reportedly an acknowledged preference for US-origin shredded material on the basis of quality.

Indian steel production

India is the world’s second-largest steel producer after China, producing 125.3 million tonnes of crude steel in 2022, according to the World Steel Association.

  • Of this total, World Steel estimates that 54.2% is produced via electric-arc furnace and 45.8% by blast-oxygen furnace (BOF) steelmaking.
  • Of the 1.89 billion tonnes of crude steel produced globally in 2022, India produced 6.6%; dwarfed in percentage terms by China, but the second-largest production recorded by a single steelmaking country over the period.
  • Finished steel utilization was 1.78 billion tonnes over the period, with India comprising 6.4% — or 113,984,000 tonnes — of that usage.
  • The split of EAF versus BOF tonnes produced in India over the period is roughly 65,386,880 tonnes for the former and 55,253,120 tonnes for the latter.
  • Global trade of ferrous scrap totaled 98.6 million tonnes in 2022, with the United States exporting 17.5 million tonnes.
  • India is expected to produce 125.32 million tonnes of crude steel in 2023. India’s steel production is estimated to grow by 4-7% to 123-127 million tonnes in 2024.
  • A minimum of 11 million tonnes per year of EAF steelmaking capacity is either slated for construction or is already in the works in the country, according to the Global Energy Monitor.

Policy support for construction and automotive

Indian steel consumption is expected to increase by 11% to approximately 126,522,240 tonnes by 2026, based on projected utilization of 113,984,000 tonnes in 2022. Steel demand from the automotive sector is expected to increase due to a rise in demand for automobiles. Automobile production in India is slated to hit 25.9 million units in 2023 versus 22.93 million units in 2022, according to the India Brand Equity Foundation.

If the 2023 forecast is accurate, it will mark the best post-Covid-19 year for Indian automotive; production was 26.27 million in 2019.

To befit an increasingly scrap-intensive landscape in the region, the government introduced the Vehicle Scrappage Policy in 2021, which is aimed at helping to quell steel prices and shore up recycled material for use in new production. Under the terms of the policy, privately-owned cars older than 20 years and commercial vehicles older than 15 years will be deregistered. Subject to a road-worthiness test, vehicles that pass can be re-registered but any that fail will be forcibly scrapped.

The Smart Cities’ Affordable Housing act — aimed at housing the poor in urban areas — and the region’s Industrial Corridor initiatives are two major government policies aimed at vastly improving infrastructure that will demand a huge proportion of steel and subsequently scrap. The latter policy is aimed at building better roads and rail networks, cargo ports, airports, industrial areas, logistics parks and shipping hubs and other urban infrastructure; these products are expected to be rebar-intensive. So far, India’s government has approved 11 of these “corridors” across the region’s cities to be implemented in four phases.

The Ministry of Steel has furthermore signed 57 memorandums of understanding with 27 companies to produce steel under the production-linked incentive scheme — launched in 2021 to incentivize the production of approved specialty steel. Investments generated under these agreements are expected to be in the region of $3.64 billion and translate to 25 million tonnes of specialty steel.

EAF Expansion?

While the country maintains a broad base of both BOF and EAF production, steel-making titan Tata Steel began work on a 750,000-tonne-per-year rebar EAF mill in January 2023. It is expected to be fully operational in 2025. If successful, the company plans to replicate the site until it hits its projected target of 36-40 million tonnes per year of EAF-produced steel. Tata Steel is planning to set up more scrap-based facilities that will have a capacity of at least 1 billion tonnes by 2025. The company plans to expand its annual capacity in India to 55 million tonnes per year by 2030.

EAF steel production can use up to 100% scrap as feedstock, though portions of these melts are usually substituted with a degree of alternative iron — namely pig iron, hot-briquetted iron and direct-reduced iron. This compares to the estimated 10-20% of scrap that is used as feedstock for blast-oxygen furnace steelmaking; the balance is comprised of iron ore. While melt mixes can vary, typical rebar production uses a majority of shredded, heavy melting and bonus scrap, which are the US’ top export grades. Lesser proportions of No2 bundles, machine shop turnings, tin can bundles and cast iron can be comprised in the melt. One tonne of rebar can comprise up to a 98.50% scrap component, implying that an almost equal ratio of scrap could be utilized in the production of this new capacity.

Blast a thing of the past?

India is home to the fifth-highest reserves of iron ore in the world, making it a natural and competitive home for BOF steelmaking — an iron-ore-intensive production practice. While BOF steelmaking is relatively scrap-light, increased investments in this area is still an indicator of growth in the region.

  1. AMNS India — the joint venture between Luxembourg-headquartered ArcelorMittal and Japan’s Nippon Steel — was green-lit to buy Indian Steel Corporation in April 2023. Specializing in cold-rolled, galvanized and coated products, the entity is in the process of rebranding as AM/NS Gandhidham Limited as part of the buyout, and produces 600,000 tpy.
  2. AM/NS India is reportedly planning a $7.4 billion dollar investment in capacity expansion in upstream and downstream production capacities in addition to enhancing iron ore capabilities, all of which will support demand.
  3. In May 2023, JSW Steel and JFE Steel, signed an agreement to set up a joint venture to manufacture the entire range of cold rolled grain-oriented electrical steel products at Vijaynagar in Karnataka.

India’s levying of a 30% export duty on iron ore — a vast proportion of BOF steel production – to ensure supply in the domestic market suggests that the region is not entirely moving away from more carbon-intensive and traditional methods of production.

Fastmarkets’ commitment to service a growing market

Fastmarkets currently prices three ferrous scrap export indices:

  • MB-STE-0425 Steel scrap HMS 1&2 (80:20), export index, fob Los Angeles, $/tonne
  • MB-STE-0418 Steel scrap HMS 1&2 (80:20), export index, fob New York, $/tonne
  • MB-STE-0419 Steel scrap shredded scrap, export index, fob New York, $/tonne

To balance its export offering for ferrous scrap exports from the US East and West Coasts respectively and befit the increasing quantity of shredded scrap shipped from the latter, Fastmarkets has announced the launch of its shredded scrap export index for the West Coast, basis fob Los Angeles on Wednesday October 11.

The methodology specifications are as follows:

MB-STE-0906 Steel scrap shredded scrap, export index, fob Los Angeles, $/tonne
Quality: Shredded scrap compliant to ISRI specifications 210-212
Quantity: Min 5,000 tonnes Location: fob Long Beach, other US West Coast ports normalized
Timing: Within 1 month Unit: US dollars per tonne
Payment terms: Cash equivalent
Publication: Every Wednesday (or following day)
Notes: North America origin. Bulk carrier

Fastmarkets’ methodology specifications can be found here: https://www.fastmarkets.com/methodology/metals/ferrous-scrap

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