Pakistan steel scrap import resilience in pandemic demonstrates need for shredded index
Fastmarkets is proposing to launch a weekly Pakistan import shredded steel scrap index to provide transparency to a market whose global prominence was recently demonstrated by its robust performance even during the most testing conditions of the initial Covid-19 pandemic.
Pakistan is the world’s fourth-largest steel scrap importer, according to figures from the Bureau of International Recycling (BIR). It imported 4.3 million tonnes in 2019, behind only Turkey, India and South Korea, on whose scrap markets Fastmarkets already regularly reports.
The launch of a Pakistan index would complement Fastmarkets’ existing steel scrap price assessments, in the South Asia region in particular. These have been a source of key information for market participants during the pandemic, with reports on supply chain disruption, port congestion and shipping concerns, among other issues.
Furthermore, Fastmarkets already includes coverage of the Pakistan shredded steel scrap import market as part of its reports on the steel scrap market in India. The launch of a new index, therefore, would be based on extensive pre-existing market data and knowledge.
The Pakistan scrap market has grown in prominence this year, as a result of the global Covid-19 pandemic. This resulted in a strict lockdown in nearby India from late March, which brought that country to a total standstill.
But while the Indian scrap market did not report any deals heard between March and the end of June, Fastmarkets continued to report trades heard on the Pakistan market on a weekly basis.
The logistical nightmare at ports and mills in India resulting from the lockdown had the consequence of traders offering material to the Pakistan market instead, because this was continuing to operate and acting as a proxy market to India.
The two markets compete for material from supplying countries, as a result of their similar, if not identical, shipping freight costs. There is, however, often a premium for Pakistan shredded above Indian shredded which goes as high as $5 per tonne.
This competition has made the Indian market more aware of the Pakistan scrap market in terms of pricing and sentiment, while it recovers from the fallout of its strict lockdown.
Pakistan is the second-largest buyer of UK-origin steel scrap, taking 993,000 tonnes in 2019. In comparison, India was the fourth-largest buyer at 799,000 tonnes, according to BIR figures.
The pandemic created a shortage of scrap material in markets around the world, including the UK, where for the past six months scrap collection has fallen by a reported 40%, according to industry sources, and was still not back to pre-Covid-19 levels.
It has been estimated that the UK exports as much as 70% of its scrap. Market sources said that shredded was the principal grade, because it benefits from a broader range of sources, compared with grades such as HMS 1&2 and plate & structural, which would rely more often on demolition projects.
While shredded material is more expensive than HMS 1&2, it is of better quality and is therefore preferred by steelmakers when producing higher grade steel products.
Additionally, the domestic steel demand in Pakistan is growing as a result of continuing renewals and additions to infrastructure following investment from China.
Agha Steel Industries, an electric-arc furnace (EAF) based steelmaker in Pakistan, is planning an initial public offering (IPO) of shares on the Pakistan stock exchange later in October 2020.
Another mill in Pakistan entered the market for containerized scrap earlier this year after starting production of rebar, in the hope of producing 40,000 tonnes of steel via EAF within six months.
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