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Ferrous Scrap (Tsi) April 11
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Ferrous Scrap (Tsi) April 11 Ferrous Scrap (Tsi) April 11 Presentation Transcript

  • ‘The Ferrous Scrap Market’ The Steel Index Jarek Mlodziejewski Tim Hard January 2011 © Copyright The Steel Index
  • Agenda• Scrap – What is it?• Scrap – What does it affect?• EAF Production• Raw Material Costs• Scrap Trade• Turkey’s Role• Introduction to The Steel Index (TSI)• TSI’s Underlying Methodology• TSI’s Scrap Price Publication © Copyright The Steel Index
  • Ferrous Scrap – What is it?• Steel is a „multi-cycling‟ material: it can be Steel Scrap Produced mt mt recycled repeatedly without degradation. 43% 600• Ferrous scrap is classed as either „prime‟ or 41% 580 „obsolete‟. 39% 560• Prime scrap material comprises off-cuts of new 37% 540 steel (by-products of manufacturing). 520 35%• Obsolete material represents redundant prior 500 33% steel-based industrial production and 480 consumption. It is primarily generated from 31% 460 discarded automotive and white product 29% 440 materials, or demolition of steel building 27% 420 structures and railways. 25% 400• It is a “greener” steel feedstock, as „virgin iron units‟ (i.e. those mined in ore form) require more power, processing and transportation than scrap.• Over 1400kg of iron ore, 400kg of coal and 55kg Steel Scrap Ratio Steel Scrap/Crude steel in % of limestone is saved for a tonne of scrap used. Source: SBB Crude Steel Forecaster• It is the world‟s most recycled material. Over 80% of consumer steel is recycled• Electric Arc Furnaces (EAFs) can be charged with % ratio falling due to 300mt of between 90-100% of scrap. BOF capacity coming on stream• Basic Oxygen Furnaces (BOFs) can be charged (especially in China) compared with up to 30% scrap. with 80mt of new EAF capacity © Copyright The Steel Index
  • Ferrous Scrap – What is it? Home Prime Obsolete HOME material is the off PRIME material is OBSOLETE material comes cuts from the mills offcuts/pressings from ‘old’ steel – used themselves when they from construction, are sizing their slabs, bars manufacturing – manufacturing steel etc. etc from ‘new’ steel. from ‘new’ steel. Scrap © Copyright The Steel Index
  • Ferrous Scrap – Sources of obsolete scrap CONSTRUCTION SHIP BREAKING SHREDDING Or more accurately, Helping to alleviate some Shredders handle demolition. When older of the capacity overhang obsolete car bodies and buildings are taken down, from the glut of late white goods. Some of the the old rebar and beams 2000‟s shipbuilding, ship larger (“mega are liberated, cut up and breaking is a significant shredders”) can even sold as Plate & Structural source of scrap. fragmentise HMS (P&S) or Heavy Melt (HMS). material. © Copyright The Steel Index
  • Ferrous Scrap – Alternative sources? 1. Pig Iron - Pig Iron generally doesn‟t come onto the market – instead being passed straight through to the BOF in integrated mills. However; merchant pig iron is produced from the blast furnace and cast into ingots for sale. It‟s formed from iron ore, coke and limestone + lots of heat. Minimum 92% Fe. Integrated Blast Furnace Basic Oxygen Furnace 2. DRI / HBI - DRI (AKA „sponge iron‟) is heated iron ore, exposed to a reducing gas. Minimum 90% Fe, typically higher, in pellet form. - HBI as above, but compacted for ease of handling/shipping. These alternatives are used to make high quality steel due to the high Fe content and the fact that that the impurities implicit in the inputs are known quantities. This reduces the residuals in the liquid steel. © Copyright The Steel Index
  • Ferrous Scrap – What is it? BOF Steelmaking Process Steel scrap has an important role to make in the steelmaking process. It typically forms the vast majority of the ferrous charge in EAF steelmaking Even in integrated steel mills using the BOF steelmaking process, which are often thought of as using only iron, scrap is used as part of their charge mix. It is generally added as a proportion of 10-30% of the total BOF volume. This is dependent on the cost of iron ore vs. scrap. If the price of iron ore is high and scrap is low, economics will dictate a higher proportion of scrap is used. © Copyright The Steel Index
  • Ferrous Scrap – What does it affect? • Scrap yards, traders and brokers sales price margins. • Steel mills using electric furnaces (80-85% of cost of production) • Integrated steel mills (up to 15% of cost of production) • Steel billet producers’ and purchasers’ margins. • Rebar, wire rod and merchant bar markets are heavily affected by scrap costs as these products are typically produced via the EAF steelmaking process. • Construction company margins. Long-range, fixed-price construction projects are directly affected by the increasing price volatility of these finished steel goods. • We cannot forget producers of flat products either, as high grade scrap is used in the production steel coil and sheet products for the construction, automotive and manufacturing industries (especially in North America). © Copyright The Steel Index
  • Ferrous Scrap – What does it affect? The imported Turkish scrap price is important to a number of finished steel markets.$USD/t $USD/t 850 550 800 500 Rebar N.Europe 750 Rebar S.Europe 450 700 Wire Rod Europe 650 Debar Turkey export FOB Turkish Port 400 Merchant Bar Turkey export FOB 600 Turkish port Turkish Scrap(RHS) 350 550 500 300 Apr 10 Jun 10 Aug 10 Oct 10 Dec 10 Feb-11Source: TSI and SBB © Copyright The Steel Index
  • Ferrous Scrap – What does it affect? $700 $140 $600 $120 $500 $100 $400 $80 $USD/t $USD/t $300 $60 $200 $40 $100 $20 $- $- Scrap - Billet Spread (RHS) Scrap HMS 80:20 $USD CFR Turkey LME Billet Not least the LME billet price. The TSI Turkish Quarterly correlation – LME and Turkish Scrap #HMS 1&2 80:20 import and LME cash seller and Q2 – 2009 49 % settlement prices show a weekly correlation of Q3 – 2009 74 % 82.4% correlation over this period. Q4 – 2009 75 % However once you spread out the data set and Q1 – 2010 91 % split it into quarters you will find that the average correlation Q2 – 2009 to Q4 -2010 is only 74%. Q2 – 2010 95 % Furthermore, there is no consistency over the Q3 – 2010 56 % period of time, with a low of 49% and a high of Q4 – 2010 76 % 95%Source: LME/TSI © Copyright The Steel Index
  • Ferrous scrap - New ways to manage price risk...for scrap. Turkish Imports HMS 1&2 80:20 – CFR Turkish Port Actuals Forward 500 PricesUS$/ Forward curvemetric TSI (mid-pointtonne Referenc prices) 450 e price Mar 16, 2011 400 350 300 Jan-10 Apr-10 Jul-10 Oct-10 Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12 Jul-12 Oct-12 Sources: TSI (monthly averages), FIS © Copyright The Steel Index
  • Ferrous scrap - New ways to manage price risk...iron oremarket example• Will a scrap derivatives market take-off?• The example of iron ore suggests a massive interest in the ability to hedge raw material input costs. Over US$5 billion (35 million tonnes) of iron ore swaps and options have been cleared since launch (basis TSI).• First scrap swap cleared last week (April 2011).... 6000 Iron Ore Swap Contracts – Cumulative Value 5000 Cleared ICEX 4000 NOS Clearing US$ CME Group (m)3000 LCH.Clearnet SGX 2000 1000 0 01/05/09 01/08/09 01/11/09 01/02/10 01/05/10 01/08/10 01/11/10 01/02/11 © Copyright The Steel Index
  • EAF Production - Many countries have a higher productionof EAF (scrap based) production than BOF. EU-27 72mt North Asia America 68mt Mid 168mt -East Africa 17mt 11mt Regional yearly EAF production South EAF mill capacities tend to cluster around the 300 kt/year America level as well as near the 1.2mt/year level. This reflects the 16mt economic scale for EAF plants and strategies to serve localCountries with >50% geographic markets EAF production © Copyright The Steel Index
  • EAF Production - ...and steel scrap use is growing,leading to increased global trade of scrap. The global financial crisis hit construction markets (which EAF producers primarily serve) particularly hard: dragging down the trend line in 2009: however, construction markets are recovering... World crude steel via EAF in World crude steel production mt mt 550 1900 33% 1700 GFC 32% 500 1500 31% 450 GFC 1300 30% 1100 29% 400 900 28% 350 700 27% 500 26% 300 BOF EAF % by EAF EAF Source: SBB Crude Steel Forecaster Source: SBB Crude Steel Forecaster Given that the world’s steel recycling ratio has fallen significantly as emerging markets consume steel and produce little scrap, the market has become structurally tighter than those for iron ore and coal. © Copyright The Steel Index
  • EAF Production – There are a few important pinchpoints in the world US Midwest: 68mtpa EAF industry inland has to compete with the East coast exporting docks for material. Rotterdam: Dockside exporter material is competed for by both Spanish and Italian importers, as well as Turkish importers. Turkey: The world‟s larges scrap importer, Hoovers up scrap Handymax-size vessel loads (circa 35,000t each) from the EU, USA, Middle East and Black-Sea bordering countries. India, West Coast: The world‟s most liquid containerised scrap import market. Like Turkey, sources from a variety of locations, but in smaller quantities. North Asia: China, S. Korea and Taiwan form a cluster of scrap importers in the largest steel producing region of the world. © Copyright The Steel Index
  • EAF Production – Exclude China and we have a differentpicture. The EAF route, as a ratio to total steel production, has been rising steadily if China is taken out of the equation %EAF route excluding China %EAF Route World total 50% 45% 40% 35% 30% 25% 20% 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010e 2011e 2012e 2013e 2014e 2015e Source: SBB Crude Steel Forecaster © Copyright The Steel Index
  • Raw Material Costs – scrap currently accounts foraround 83% of the EAF mill production structure... Operational production cost/t liquid steel EU EAF Mill, US$/t Scrap/pig iron Alloys Electricity Electrodes EAF Refractories Scrap credit Labour & maintenance Other Indicative 18.59 31.94 16.72Assumptions:Scrap rate: 100% 28.72Electricity consumption: 490kWh/t 16.82 29.87 15.05 17.67 14.54 27.53 30.35 27.41 423.82 380 83% Scrap 310.97 265.05 222.69 241.47 2005 2006 2007 2008 2009 2010e Source: SteelConsult analysis © Copyright The Steel Index
  • Raw material costs – …and around 7-15% of BOFproduction costs.... Operational production cost/t liquid steel EU BOF Mill, US$/t Hot metal Scrap Fluxes BOF gas credit Scrap credit Labour & Maintenance Other Indicative 23.9 49.82 18.03 21.49Assumptions: 78.65 44.8Scrap rate: 18% 16.21 64.02 15% 22.35 Scrap 22.71 45.6 19.99 20.73 47.34 16.86 39.43 40.79 17.14 15.32 15.46 57.33 44.66 41.9 49.06 380.95 304.26 188.78 184.51 159.05 156.19 2005 2006 2007 2008 2009 2010e Source: SteelConsult analysis © Copyright The Steel Index
  • Raw material costs – ...and scrap is a volatile commodity,which poses headaches for EAF mill buyers, as well as downstream buyers.US$/t$600 Scrap HMS #1&2 80:20 • Steel and ore price cycle amplitudes are$500 (CFR Turkey) increasing. • 2004-2005 saw a 60% steel price +29% movement peak-to-trough. -26%$400 • January 2009 to 2011 has so far seen a 121% increase trough-to-peak for$300 scrap. Hard Coking Coal • Price volatility and future price$200 (FOB E. Australia) uncertainty is detrimental to all companies participating in the supply chain in many ways: - commercial negotiations$100 Iron Ore 62%FE - relationship management (CFR China) - production planning - raising finance, cost of capital $- Apr-10 Apr-09 Feb-09 Sep-09 Feb-11 Feb-10 Sep-10 Jun-09 Jul-09 Jun-10 Jul-10 Mar-10 Mar-11 Mar-09 Dec-10 Dec-09 Aug-09 Oct-09 Aug-10 Oct-10 Jan-09 Jan-11 Jan-10 Nov-09 Nov-10 May-10 May-09 Source: Scrap and Iron Ore - TSI, Coking coal - SBB © Copyright The Steel Index
  • Raw Material Costs - Iron ore prices also correlate withscrap. $210 $600 $190 88% Correlation $500 US$/tUS$/t $170 $400 $150 $130 $300 $110 $200 $90 $100 $70 $50 $- Iron Ore 62%Fe CFR China - TSI Scrap HMS 80:20 $USD CFR Turkey (RHS) Source: TSI Price volatility is set to continue in the future, with scrap and iron ore prices likely to show an increasing correlation © Copyright The Steel Index
  • Scrap Trade – There will be over 120mt of scrap tradedthis year. Trade flows At current prices of around US$470/t, the yearly scrapCountries with >50% trade is worth US$ 56 billion EAF production Source: BIR and TSI © Copyright The Steel Index
  • Scrap Trade – Russian EAF capacity expansion will curtail theirexports, while Asian demand stokes world export demand. Top 4 countries with upcoming EAF capacity – up to 2013 +10 mt EAF 10 m/t EAF 4 m/t BOF 7 m/t mt EAF + 4mt EAF +7 EAF +10 mt EAF © Copyright The Steel Index
  • Scrap Trade- An already structurally tight global market is setto tighten further. Country Tariff Rate on scrap Will become major importers of Argentina 20% ferrous scrap in the future. China 40% Egypt 500-1500EGP/t India 15% Used to be key exporters of Iran 50% ferrous scrap. 15% min 20EUR/t and export Kazakhstan licence Kenya 25% and export ban 10% and non-automatic export Malaysia licence World Scrap Exports (mt) Russian Federation 15%, min 15EUR/t 25 Ukraine 16.4EUR/t and export licence 20 Vietnam 25% 15 UAE Dirham 250/t Argentina Temp. Export ban 10 South Africa Export permit 5 Russia Azerbaijan Export ban CAGR 0 -38% Indonesia Export ban 2005 2006 2007 2008 2009 2010 Jordan Export ban -5 Sri Lanka Export ban USA EU Japan Uruguay Export ban Russia Ukraine Linear (Russia) Source: OECD Source: BIR World ferrous report © Copyright The Steel Index
  • Scrap Trade – The world’s largest importer of scrap... The US and Europe are the primary producers of steel scrap. Turkey, as the largest importer of scrap in the world, is a key consumer of world scrap, affecting domestic producers and consuming both EU and US origin material. Top 5 Importers $USD/t 50 Imports (000s t) vs. Price $600 2,500 45 40 $500 2,000 35 $400 30 1,500 $300 25mt 1,000 20 $200 15 500 $100 10 5 $- - Sep-09 Sep-10 Mar-09 Apr-09 Aug-09 Oct-09 Mar-10 Apr-10 Aug-10 Oct-10 Jun-09 Dec-09 Jun-10 Dec-10 Jan-09 Feb-09 Jan-10 Feb-10 Jan-11 Feb-11 May-09 May-10 Jul-09 Nov-09 Jul-10 Nov-10 0 2005 2006 2007 2008 2009 2010 Turkey Ferrous scrap imports (tonnes) Turkey China South Korea India Taiwan Scrap HMS 80:20 $USD CFR Turkey Source: BIR World ferrous report Source: TSI, SBB and Turkey Statistical Institute © Copyright The Steel Index
  • Turkeys’ Role – ...and an important regional marker... All prices $USD/t. Turkish price: TSI, all other prices SBB. TSI HMS 80:20 CFR Turkey Shredded N.Europe Dom. Del. Shredded Rotterdam Export Shredded N.Am export FOB E. Coast Apr-10 456 422.5 447.5 396 May-10 381 347.5 367.5 344.5 Jun-10 324 308.5 324 312.5 Jul-10 349 306 338.5 312.5 Aug-10 395 338.5 367.5 335 Sep-10 399 354.5 382.5 364 Oct-10 377 350.5 345 337 Nov-10 401 342.5 357 356.5 Dec-10 460 396 409 399 Jan-11 515 472.5 480 453 Correlation to TSI Turkish Scrap: 93.00% 92.10% 95.80% 550 500 450 $USD/t 400 350 300 Apr-10 May-10 Jun-10 Jul-10 Aug-10 Sep-10 Oct-10 Nov-10 Dec-10 Jan-11 HMS 80:20 CFR Turkey Shredded N.Europe Dom. Del. Shredded Rotterdam Export Shredded / N.Am export FOB E. Coast All prices $USD/t. Turkish price: TSI, all other prices SBB. © Copyright The Steel Index
  • Turkeys’ Role – ...its diverse scrap sourcing affects manydomestic markets. Other 1% 2009 MENA 8% Estonia Finland France Denmark Bulgaria Holland CIS/Balkans 15% European Union Belgium England Sweden 50% Italy Turkish buyers have Austria Latvia Lithuania Malta increasingly looked US/Canada Germany 26% Slovenia Romania Hungary towards their neighbours Poland for their scrap supply. The shorter lead times Other 2% and familiarity with 2010 MENA European business 7% France Estonia Finland practises have lead to CIS/Balkans Denmark Holland closer relationships and Bulgaria 13% better contacts. England Belgium Sweden European Union 56% Poland Latvia US/Canada 22% Germany Hungary Austria Lithuania Romania Italy Slovenia MaltaSource: TSI, SBB and Turkish Statistical Institute © Copyright The Steel Index
  • Composition of Turkish Data SeriesAs with all TSI indices, our methodology requires both buy and sell-sides tocontribute data to the series.The current % make-up of contributors to the Turkish series is as below. /27 © Copyright The Steel Index
  • The Steel Index (TSI) The Premier Price Information Service Weekly Daily Weekly Prices You Can Trust © Copyright The Steel Index
  • Introduction to The Steel Index (TSI) The Premier Price Information Service • Prices compiled from verifiable industry transaction price data. • Transaction data submitted to TSI confidentially by companies buying and selling relevant products (over 500 registered ‘data providers’). • Fully transparent and verifiable processes. • Unique consistent methodology applied worldwide. • Available on-line and by e-mail. Unique, fact-based and verifiable approach used to compile all reference prices. © Copyright The Steel Index
  • Introduction to The Steel Index (TSI) The Premier Price Information Service• The Steel Index was launched in 2006 specifically to respond to the need for: − more frequent − more precise − independent …reference price information• Ferrous prices are gathered in a robust, reliable manner.• The index is produced from actual physical market transaction data points: a volume-weighted average. It is not a journalistic assessment.• Pioneering approach to compiling steel price information – using only transaction data, suitable for indexing and price risk management. © Copyright The Steel Index
  • TSI’s Underlying Methodology Data The Steel LEGAL Provider Index AGREEMENT Submits price data to TSI using secure online system Buy/Sell High & low Outliers balance excluded excluded Final Step3 Step2 Step1 Transaction Data Set Data Sample Volume-weighted averages TSI Publishcalculated Step4 Reference Prices © Copyright The Steel Index
  • TSI’s Scrap Price Publication• Submissions of actual physical spot market transactions are submitted to TSI throughout the week, up until the deadline of 11.00 GMT each Friday.• The data set is then subjected to an analysis to remove outliers, with the remaining data points being volume-weighted to produce a single average price. This methodology firmly grounds the number in the physical market.• TSI publishes scrap prices to our subscribers each Friday at 12.30 GMT (apart from UK public holidays, in which case prices are published the following UK business day).• Prices are published online and by email, with associated market commentary and other relevant market information. © Copyright The Steel Index
  • TSI’s Scrap Price Publication © Copyright The Steel Index
  • TSI’s Scrap Price Publication © Copyright The Steel Index
  • © Copyright The Steel Index /35