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M A R K E T A N A L Y S I S

Ferrous

Early-year increase in ferrous scrap prices

Declining scrap exports from Russia and the Ukraine forced Turkey to increase its purchas- in December to US$ 223.33 per gross
tonne during the course of January.
ing prices in mid-January by US$ 15-25 per tonne, with the 80/20 HMS I/II mix now exceed- There has been a drop in scrap de-
mand from US hot rolled coil (HRC)
ing US$ 300 a tonne. Once more, however, exporters in the USA and Europe have had their
producers because mills are struggling
gains trimmed by a US$ 8-10 per tonne increase in freight rates since early December. With to hold finished product prices above
US$ 500 per net tonne.
international scrap trading conducted in US dollars, European exporters were also hit by the With the Ukraine and Russia fo-
cusing on their domestic markets
weakness of the US dollar in relation to the Euro. Meanwhile, mild winter conditions in Europe
during the fourth quarter, the two
and the USA have boosted construction activity and hence the need for scrap. Towards the countries offered much less scrap to
Turkey. As a result, Turkish mills
end of January, fob Rotterdam prices stood at US$ 270-275 per tonne for 80/20 HMS I/II became dependent on US and West-
ern European exports to satisfy their
scrap, US$ 275-280 for shredded, and US$ 260-265 for the 60/40 I/II scrap mix.
scrap needs.
US scrap exporters were able to
In mid-January, the scrap price per tonne above the December level. take advantage of the weakness of
for deliveries into Turkey had risen In the USA, the January automo- the dollar but suffered as a result of
to around US$ 305 per tonne for the bile factory bundles price gained an increase in freight rates to over
80/20 HMS I/II mix and to US$ 310 US$ 31 to US$ 249 per gross tonne US$ 40 per tonne. In the UK, Janu-
Closed: January 24 2007 for shredded scrap. Some traders ex- while scrap prices improved by around ary scrap prices rose more than £15
pect the cfr Turkey price to rise as far US$ 25 per tonne. Meanwhile, the US (Euro 21.30/US$ 26) per tonne.
By Alfred Nijkerk as US$ 320 per tonne - some US$ 40 Composite price jumped from US$ 207 Deep-sea freight rates from

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M A R K E T A N A L Y S I S

US$ 1.30 towards the end of Janu- their scrap, although they were
Russia’s scrap exports set to halve in 2007 ary, the exporter’s fob yield worked saved to some extent by a jump in
Russia may halve its overseas shipments of ferrous scrap this year if out at Euro 206 per tonne. In other construction steel prices.
domestic demand continues to grow, the Russian Council for the scrap words, rapidly-rising freight rates
processing industry (KSLP) has warned. Domestic scrap demand has and a weaker US dollar yielded him Shipbreaking prices
increased by 30% over the last two years to 1.8 million tonnes per a gain of only Euro 6 per tonne while still on the increase
month as more EAF steelmaking capacity has been commissioned, and American counterparts were seeing Due to high freight rates and,
this figure could rise to 1.9-2 million tonnes in 2007. KSLP forecasts a net increase in the fob price of hence, a worldwide shortage of ships
that Russian scrap demand may grow over 20% this year. US$ 15 or Euro 11.50 per tonne. for dismantling, prices for these ves-
However, the Russian scrap collection total fell 5% last year to Once again, Turkish mills clearly sels have risen to new heights. In
around 27.5 million tonnes, leading to an increase in imports from, in misjudged the scrap market at the 2005, leading shipbreakers in India
the main, the former CIS countries. These imports climbed 45% in 2006, end of November, hoping that it and Bangladesh were paying
with more than half coming from Kazakhstan. would decline further in December US$ 305 per ldt for an oil tanker and
In 2005, Russia was still the world’s largest scrap exporter with a and the first quarter of 2007. On re- US$ 330 per ldt for a bulk (dry car-
total of 15 million tonnes but top spot was lost last year when exports alising in December that they had go) tanker. Last year, these prices
fell to only 7 million tonnes. Total scrap supply in Russia was also down missed the rising market, they re- jumped to, respectively, US$ 410
from 30 million tonnes in 2005 to 29 million tonnes last year. sorted to their old tactics: in a con- and US$ 390. Of course, dismantling
Ukrainian scrap exports fell heavily in 2005 and declined by more certed action, a huge quantity of costs still have to be added to these
than 4% last year to 800 000 tonnes. scrap was bought by a group of lead- amounts.
ing scrap-importing mills and then
all of them promptly withdrew com- Competing commodities
made their way to Turkey over the pletely from the market. Over a four- In addition to iron ore and scrap,
December/January period. week period, the Turks are said to there has also been an increase in
The Euro/US dollar exchange rate have bought at least 1.2 million pig iron prices. Given that scrap
has endured something of a roller- tonnes of scrap. prices have increased far more than
coaster ride over the past two months: The Turkish mills believe this ap- anticipated, further price gains are
one Euro was worth US$ 1.26 in early proach will induce panic among ex- also expected for pig iron and DRI.
December, US$ 1.32 at the end of porters and force them to make sig- Mid-January, Russian pig iron yield-
2006, and then US$ 1.30 by mid- nificant cuts in their asking prices. ed US$ 320 per tonne fob. Mean-
January. At the time of writing, it is still un- while, prices for hard coking coal
clear whether this Turkish ruse has have dropped some 15.5%.
Freight and currency hurt worked. In November, these tactics Last year, Chinese imports of iron
European exporters failed completely as mills were ore amounted to 325 million tonnes -
All exporters of scrap have suf- forced to pay substantially more for an increase of 55 million tonnes over
fered the effects of rapidly-rising
freight costs over the past two quar-
ters. But in contrast to their US col-
leagues, European exporters have
Europe and the USA to Turkey also also been hit by the drop in the value
increased by an average of US$ 10 of the US dollar in relation to the
per tonne. One of the reasons for this Euro and sterling.
increase is that the Chinese are con- In early December, a European
tinuing to import ever more iron ore exporter of 80/20 scrap could sell car-
while exporting more semi-finished goes to Turkey at around US$ 275
steel (see following two sections). per tonne cfr with a freight cost of
For scrap cargoes of around some US$ 22 per tonne. Thus, his fob
30 000 tonnes, European exporters Rotterdam (or fob UK port) yield was
to Turkey faced freight increases equivalent to US$ 253 per tonne.
from around US$ 22 per tonne in With the Euro worth US$ 1.26 at
early December to US$ 31 per tonne that time, his fob yield in Euro terms
in January. Freight costs from the was around Euro 200 per tonne. By
US East Coast to Turkey rose over early January, he could have
the same period from US$ 30-31 per achieved US$ 300 per tonne cfr
tonne to over US$ 40 per tonne. Con- Turkey given that the scrap price
tainer freight rates from the US had climbed some US$ 25 per tonne.
West Coast to South East Asia sus- However, overseas freight rates had
tained an increase of US$ 100 per jumped to around US$ 32 per tonne,
40-foot container with effect from such that exporters achieved fob lev-
January 1. els of US$ 268 per tonne. With the
In total, some 50 vessels carrying Euro having gained value in relation
around 1.2 million tonnes of scrap to the US dollar to be worth some

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M A R K E T A N A L Y S I S

2005. This higher level of purchas-
ing is influencing freight rates, not
least because Chinese iron ore im-
ports are expected to rise yet again
this year to no less than 355 million
tonnes (see box: ‘Predictions for 2007’).
The extra 85 million tonnes of sea-
borne ore over the last two years
equates to no less than 850 addition-
al Capesize vessels, each capable of
carrying 100 000 tonnes.
For the ‘lump’ and ‘fines’ qualities,
US dollar-based iron ore prices have
risen by 9.5% for the present year fol-
lowing increases of 19.5% in 2006 and
71% in 2005. This means that the
iron ore price has risen by a factor of
2.24 since 2004. Meanwhile, the price
for pellet has climbed only 5.28%.
In 2006, negotiations continued
until June 21 before the main steel
mills and the big three iron ore sup-
pliers - CVRD of Brazil and Aus-
tralia’s BHP-Billiton and Rio Tinto -
reached agreement on prices. But
this time round, 2007 iron ore prices
were settled as early December 22
last year. The main reason behind
the rapid acceptance of the new price
levels by the Chinese and Japanese -
and later by mills in Europe - was the
partial offsetting of the 9.5% increase
by the very low value of the US dollar
against the Euro, pound sterling, the
Yen and the Chinese RMB.
Calls have become ever louder for So after the New Year, EU and World steel production increased
worldwide iron ore, coal and scrap Turkish mills returned to the inter- again last year - by around 8% - but
transactions to be conducted in Eu- national rebar and debar markets growth was focused mainly on China.
ros rather than in US dollars. with even higher prices. The Chinese government is finally
HRC and cold-rolled coils (CRC) making serious efforts to curb over-
Steel recovery in Europe also posted six-month declines in the expansion of the domestic steelmak-
After reaching peaks in the second USA but, towards the end of Janu- ing sector, using as its main argu-
quarter of 2006, steel prices in the ary, Chinese and Indian mills have ment ‘a lack of proper environmental
USA and some other countries began increased their offers to North Euro- assessments’.
to decline. The USA witnessed no pean buyers by some Euro 10 per In reality, China is more con-
fewer than 12 consecutive price falls tonne cfr Antwerp. HRC prices in fob cerned about international criticism,
for flat products within a six-month US Midwest terms reached US$ 600- with many blaming the Golden
period; this phenomenon was blamed 640 per short ton in September 2006 Dragon for saddling other countries
on rapid growth in cheap imports of before falling to US$ 580-620 in Octo- with its ever-growing over-produc-
finished and semi-finished steel, no- ber, US$ 540-580 in November, and tion. Furthermore, there are repeat-
tably from China and Eastern Eu- US$ 500-560 in December. By early ed failures in the domestic transport
rope. Last year, US steel imports January, they had arrived at system - whether road or rail.
reached 45 million tonnes - their US$ 480-520 per short ton.
highest level since 1998 and 38.5%
above the 2005 total. Chinese ex-
ports to the USA soared 125% last
year to 5.4 million tonnes.
The European market remained
comparatively strong in 2006, espe-
cially for long construction steel
such as sections, rebar and debar. At
the end of 2006, however, European
prices also started to show signs of
weakness as construction activity
tends to stagnate in winter. Howev-
er, due to extremely mild conditions
in December and January - when,
unusually, the Black Sea ports failed
to freeze - building activity in Eu-
rope continued with few problems.

Conclusion
Predictions for 2007 The international scrap market has made a remarkable recovery in January
Around the year-end, research organisations tend to come up with but many traders fear the higher prices will be short-lived, particularly if
bold predictions for the coming year. Australia’s ABARE has ventured Turkey reverts to type and pulls out of the market in February. The question is
the following figures (x million tonnes): whether steel prices will return to higher levels in the second quarter. Below
are some of the positive and negative factors that are likely to influence the fu-
2006 2007 ture direction of the global scrap market:
World steel production 1240 1320
Chinese steel production 420 460
Iron ore production 1470 1610 Positive Negative
Iron ore trade 800 870 • World steel production is still • But over-production may hit steel
Global consumption of coking coal 750 800 rising. prices.
Chinese iron ore imports 325 355 • A few new electric are furnace • But the percentage of world EAF
(EAF) projects are taking shape, steel production is on a falling
Finally, here are some figures which illustrate the massive growth especially in Russia, the Ukraine, trend: it was at 33.8% in 2001 but
taking place in China: the Middle East (and maybe fell to 31.7% in 2005, with figures
finished steel exports soared 110% last year to 43 million tonnes while China). expected to confirm an even lower
semi-finished steel exports jumped 28% to 9 million tonnes. Meanwhile, percentage for 2006.
the country’s steel imports fell almost 30% to 18.5 million tonnes. • The low value of the US dollar • But non-U.S. exporters will obtain
China’s Hot Rolled Coil exports to the EU leapt from 129 000 tonnes will make scrap imports cheaper. less for their iron ore, pig iron, DRI
in 2005 to 548 000 tonnes last year. By comparison, India’s coil exports and scrap.
to the EU advanced from 278 000 tonnes in 2005 to 653 000 tonnes. • The current mild winter in many • But there appears to be an over-
Most of this volume enters Europe via Antwerp, whose import total parts of the world is good for con- production of long steel which, as
increased from 3.5 million tonnes in 2005 to 4.5 million tonnes last year. struction activity. an EAF product, demands a sub-
stantial scrap input.

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With Russia and China appearing Far less scrap will be derived from
Euro vs. Dollar Oil price per barrel to have overcome their electricity shipbreaking as high freight rates
1,34 83
shortages of previous years, both are dissuading owners from sending
1,30 76 have announced plans to build more vessels for dismantling. Last year,
EAF plants. Russia began this some 3 to 4 million tonnes of ship
1,26 69
process in 2006 while China - as well scrap was lost to the market.
1,22 62 as rapidly-developing Iran, for in- In the short term, the current
stance - is set to begin construction high scrap prices may come under
1,18 55
Januari 2006 - December 2006 Januari 2006 - December 2006 of these new plants in 2007 or 2008, threat; in the longer term, however,
thereby boosting demand for scrap. the price outlook is more positive.

Ferrous Scrap Prices (Reference date: 24 January, 2007)

260 300
255
250 290
240
240 240
231.83
280
Highest price
270
230 235.67 270
220.17 227
260
220 260 255
207 250 250 250 264
210 250 255
245 245
207.17 250
200 197.50 245 235 245
240 240
195.33 199.83
190 194 230 225 230 230 230
220
180 220 215
220
170 210 215
210
160 200
190 Lowest price
150 190

140 185
USA Domestic Scrap Prices 180

130 (US$/GRT) 170

HMS 1 heavy steel scrap (1/4 Inch) Fob Rotterdam Export Prices (US$/t)
120 composite price delivered at mills 160 HMS 80/20 heavy steel scrap
110 150
Dec Jan Feb Mar Apr May Jun July Aug Sep Oct Nov Dec Dec Jan Feb Mar Apr May Jun July Aug Sep Oct Nov Dec

270 270
260
260 Fob East 260
255 255 255
Coast price
250 250 250
245 240 245
240 250
240 245 240 236.1
240 240 230 234.9
240
230 230
230 230 230 222
220 221.50
220 215 220
220 220.80
210
210 215 210
206.30 211
203.70
200 205 200 205.50

185 Fob West

190 Coast price 190
180.5 187.80
180 180 180
180 179.5
170 170

160 160

150 150 * Average German Scrap

140 140 Prices (€/t)
USA Export Prices (US$/GRT) S2 / E2, steel scrap (3 mm)
130 HMS 1, heavy steel scrap (1/4 Inch) 130 Delivered at mills
120 120
Dec Jan Feb Mar Apr May Jun July Aug Sep Oct Nov Dec Dec Jan Feb Mar Apr May Jun July Aug Sep Oct Nov Dec

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