Tight supply supports scrap despite weak steel: conference
A lack of steel demand in Europe has resulted in lower steel production, leading to low internal scrap generation. Moreover, demolition, construction, and manufacturing declined, resulting in still lower scrap supply.
Amid a depressed global economy, the steel industry's game changer, China, is yet to recover economically. China's soured real estate sector has impacted domestic steel demand. Major EU-origin scrap importers Turkey’s and Egypt's local currencies have depreciated, resulting in low domestic steel demand, panelists said at Kallanish Steel Scrap 2024 in Istanbul last week.
Panelists agreed that scrap prices would remain stable in the first half of 2024 due to the unfavourable economic fundamentals in Europe and worldwide, as well as conflict in the Middle East and Ukraine. Major scrap importers in Egypt and Türkiye will continue to suffer in H1 due to high interest rates, which generally tighten demand for steel and scrap.
In western Europe, energy costs, the main scrap price driver, are lower today than at the beginning of 2023. Manufacturing, demolition and construction have declined. There is less steel production, which means less scrap generation, which has resulted in tight scrap supply and elevated prices, said Alain Eeckman, commercial director of Casier Recycling. Flat steel producers in Europe are demanding more high-grade scrap. Depending on supply and demand, premiums between grades could change from current levels, he added.
In a volatile market, investing in 30,000-40,000 tonnes of scrap collection costs nearly $10 million and will bring less profit than depositing the money in US bonds with a yearly return of 5%. The financial situation is not suitable and profitable enough this year to invest in the scrap business, opined Baştuğ deputy general manager Emrah Uğursal. In the last quarter of 2024, amid decreasing interest rates, Uğursal forecasts steel and scrap business profitability will improve.
Vertical integration by a Turkish mill to engage in the US scrap business was not a successful experience in previous years, and the mill quit a few years later, said Uğursal. There are market rumours of a Turkish listed steelmaker agreeing a joint venture or partnership with Amsterdam Scrap Terminal. However, investing in a scrap business in a competitive scrap market in Holland may not bring the desired result. Scrap collection is an entirely different business model, he concluded.
Indian MTC group senior manager Pratik Shah meanwhile said the general rule of the market dictates that if demand for finished products increases, raw material quotes will also grow. There needs to be more demand for finished products worldwide, and the Red Sea issue is another constraint. From September onwards, problems should ease and a slight improvement is expected. The last quarter will make up for the rest of the year.
Acemar board member Cüneyt Çöke underlined that a few European countries are in recession, with soft landing expectations in H1. He believes in some optimism for H2, saying: "Turkey and Egypt are in similar economic conditions with tight steel demand. In H2, if interest rates come down globally, mortgage rates will fall, leading to a recovery. The Turkish steel market's main driver is the domestic market, while few steel export markets are left over. If the Turkish banks open credit lines, recovery is likely in Türkiye."
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