EUROFER Analysis of EU Steel Scrap Market in 2020
Eurofer’s Director Market Analysis & Economic Studies Mr Alessandro Sciamarelli and Senior Manager Circular Economy & Raw Materials Ms Aurelio Braconi has highlighted the market condition, supply & demand and consumption of steel scarp in Europe in 2020 for 2020 in EUROFER’s Annual Report. They wrote “Ferrous scrap prices plunged in the first quarter as the COVID-19 pandemic halted downstream sectors. In general, the scrap demand by mills was sapped by multiple countries suspending downstream construction and manufacturing activities, creating further uncertainties for the next quarter. In particular, container and bulk scrap prices came under pressure immediately in the New Year, coming off high price levels in December 2019, also due to geopolitical tensions in Turkey and a weak rebar market. The escalation of the COVID-19 pandemic globally in March led to even more stringent responses in European and Asian regions, with lockdowns imposed in key scrap markets, creating disruptions to manpower and logistics, pressuring thus steel prices. This market situation gave little incentive to collect scrap until prices rebounded. This shortage in collection was perceived by market participants as the only option for limiting the downside and giving some support to scrap prices. Moreover, the implementation of measures against the COVID-19 outbreak halted production in steel in many downstream sectors, such as in Europe and US, creating the shortages of pre-consumer scrap grades.”
The second quarter was characterised by the volatility in the market with scrap prices sharply fluctuating in the attempt to recover after the huge losses registered in the first quarter. The weakness of the steel demand in scrap-using regions led any price increment to succumb to market forces. Steel long product makers and, in general, Electric Arc Furnace producers also reported low second quarter figures, with demand slowing down and steel inventories growing. The return of Chinese demand for imported steel billets represented the backbone of the recovery for those EAF producers in East and South-East Asia, returning back to production, although not at pre-pandemic levels. This trend prevents scrap prices in the Asian market falling even further. Scrap collection was diversified on the basis of the anti-pandemic measures put in place in different countries and regions. For instance, scrap collection in key exporting regions, such the US and EU remained at low levels due to coronavirus related restrictions on movement, which paralysed activity at scrap yards. However, in other regions, such Russia, scrap collection and export trends were not so greatly impacted thanks to milder restrictions on businesses. The industrial disruptions in scrap exporting regions continued to put prime scrap flows under pressure, whose shortage impeded prices from falling further compared to old scrap.
The ferrous scrap registered a strong performance along the entire quarter, with scrap prices for Turkey, for instance, being substantially stronger in August and for most part of September. Scrap collectors and merchants were reported stockpiling ferrous scrap during the quarter and preparing the marketing strategy for the next one. Steel production in many regions was reported as being on a recovery trend, creating the conditions for stabilising and even possibly improving market conditions for ferrous scrap. Strong steel demand in China, and the regulations limiting scrap import in the country, continued to support the production of billets from scrap by EAF in South-East Asian countries, imported by China to mitigate high raw materials prices (iron ore). After the issues in the second quarter caused by the COVID- 19 outbreak in Asian regions, the containers market became stronger. Even in the third quarter containers’ prices continued to climb. The impact was mitigated by scrap procurers by securing cargoes with smaller volumes. US improved its domestic capacity utilisation rate and thus improved the domestic demand for ferrous scrap, making the supply of scrap material to Asia tighter towards the end of the quarter. High collection prices reported in EU and US, strong iron ore prices, and firm domestic demand competing against the export market generated a bullish sentiment in the market at the end of the quarter.
The fourth quarter showed an exceptionally strong scrap market, where ferrous scrap pricing level outpaced January levels in the first quarter and paved the way to a very strong first quarter of 2021. Demand was reported as being very strong in all scrap using markets, such Turkey, United Stated, EU and Asia. This trend occurred because of improved market conditions for steel finished products. The stability of export markets for larger scrap exporters helped in stabilising the upper trend. Turkey was highly active in the market, but US and Baltic exporters were reportedly less active or not giving offers. This was especially true for US scrap traders and merchants because of very strong domestic demand. Due to the restart of downstream industrial production, the supply of prime grades became less problematic while the availability of old and demolition scrap grades showed signs of tightness. In fact, the usual seasonal factors at the end of the year reduced the collected scrap inflows, supporting even further higher prices. A very strong and sustained general recovery in steel production led demand for ferrous scrap to increase enormously. Moreover, some European scrap dealers reported that the scrap supply was not immediately growing as scrap collectors withheld some material in anticipation of expected price peak between the end of 2020 and beginning of 2021.
The HMS 1&2 (80:20) index CFR Turkey began the year around $290 per tonne, bottomed at around $240 per tonne in April and then increased to around $420 per ton in December.