World ferrous scrap market

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Comprehensive and up to date presentation on the importance of ferrous scrap in the world steel market. Includes the role that Turkey plays in this market and the future of scrap in derivatives.

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World ferrous scrap market

  1. 1. ‘The Ferrous Scrap Market’ The Steel Index Jarek Mlodziejewski Tim Hard January 2011 © Copyright The Steel Index
  2. 2. 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
  3. 3. 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
  4. 4. 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
  5. 5. Ferrous Scrap – What does it affect? The imported Turkish scrap price is important to a number of finished steel markets.$USD/t $USD/t 800 550 750 500 Rebar N.Europe 700 450 Rebar S.Europe 650 Wire Rod Europe 400 Debar Turkey export FOB Turkish Port 600 Merchant Bar Turkey export FOB Turkish port 350 550 Turkish Scrap(RHS) 500 300 Apr May Jun Jul Aug Sep Oct Nov Dec Jan 10 10 10 10 10 10 10 10 10 11Source: TSI and SBB © Copyright The Steel Index
  6. 6. Ferrous Scrap – What does it affect? 700 140 600 120 500 100 400 80 $USD/t $USD/t 300 60 200 40 100 20 0 0 Spread (RHS) Turkish Scrap LME Billet Not least the LME billet price. The TSI Turkish #HMS Quarterly correlation – LME and Turkish Scrap 1&2 80:20 import and LME cash seller and settlement Q2 – 2009 49 % prices show a weekly correlation of 82.4% correlation over this period. The correlation of the average monthly Q3 – 2009 74 % average prices over the same period rises to 91.4%. Q4 – 2009 75 % However once you spread out the data set and split it Q1 – 2010 91 % into quarters you will find that the average correlation Q2 – 2010 95 % Q2 – 2009 to Q4 -2010 is only 74%. Furthermore, there is no consistency over the period of time; with a low of Q3 – 2010 56 % 49% and a high of 95% Q4 – 2010 76 %Source: LME/TSI © Copyright The Steel Index
  7. 7. 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
  8. 8. 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
  9. 9. 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
  10. 10. 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
  11. 11. 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
  12. 12. Raw material costs – ...and scrap is a volatile commodity,which poses headaches for EAF mill buyers, as well as downstream buyers. $600US$/t 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 +121% • January 2009 to 2011 has so far seen a121% increase trough-to-peak for $300 scrap. • Price volatility and future price uncertainty is detrimental to all $200 Hard Coking Coal companies participating in the supply (FOB E. Australia) chain in many ways: - commercial negotiations - relationship management $100 Iron Ore 62%FE - production planning (CFR China) - raising finance, cost of capital $- Aug-09 Sep-09 Aug-10 Sep-10 Feb-09 Apr-09 May-09 Oct-09 Dec-09 Feb-10 Apr-10 May-10 Oct-10 Dec-10 Nov-09 Nov-10 Jan-09 Jan-10 Jan-11 Mar-09 Jun-09 Jul-09 Mar-10 Jun-10 Jul-10 Source: Scrap and Iron Ore - TSI, Coking coal - SBB © Copyright The Steel Index
  13. 13. Raw Material Costs - Iron ore prices also correlate withscrap. $500 $200 $450 $180 88% Correlation US$/tUS$/t $160 $400 $140 $350 $120 $300 $100 $250 $80 $200 $60 $150 $40 $100 $20 $50 $- Scrap HMS 80:20 $USD CFR Turkey Iron Ore 62%Fe CFR China - (RHS) SBB 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
  14. 14. 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
  15. 15. 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
  16. 16. 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
  17. 17. 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 $500 2,500 45 $450 40 $400 2,000 35 $350 30 $300 1,500 25mt $250 20 $200 1,000 15 $150 $100 500 10 $50 5 $- - 0 Dec-09 Dec-10 Jan-09 Feb-09 Jun-09 Jan-10 Feb-10 Jun-10 Mar-09 Apr-09 May-09 Aug-09 Sep-09 Mar-10 Apr-10 May-10 Aug-10 Sep-10 Jul-09 Oct-09 Jul-10 Oct-10 Nov-09 Nov-10 2005 2006 2007 2008 2009 2010e Turkey China South Korea India Taiwan Total Turkish scrap imports Scrap HMS 80:20 $USD CFR Turkey Source: BIR World ferrous report Source: TSI, SBB and Turkey Statistical Institute © Copyright The Steel Index
  18. 18. 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
  19. 19. 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
  20. 20. The Steel Index (TSI) The Premier Price Information Service Weekly Daily Weekly Prices You Can Trust © Copyright The Steel Index
  21. 21. 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
  22. 22. 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
  23. 23. 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
  24. 24. 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
  25. 25. TSI’s Scrap Price Publication © Copyright The Steel Index
  26. 26. TSI’s Scrap Price Publication © Copyright The Steel Index
  27. 27. © Copyright The Steel Index /27

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