Ferrous Scrap Steel Market Latin America


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Recent presentation that I gave at SBB\'s Steel Markets Latin America in August

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Ferrous Scrap Steel Market Latin America

  1. 1. Ferrous Scrap<br />JarekMlodziejewski<br />The Steel Index<br />
  2. 2. Background<br />Pinch Points<br />The Steel Index<br />
  3. 3. Background<br />
  4. 4. So quickly, what is scrap?<br />Steel is a ‘multi-cycling’ material<br />It is a “greener” steel feedstock<br />Over 1500kg of iron ore, 400kg of coal and 55kg of limestone is saved for a tonne of scrap used.<br />It is the world’s most recycled material. <br />Electric Arc Furnaces (EAFs) can be charged with between 90-100% of scrap.<br />Basic Oxygen Furnaces (BOFs) can be charged with up to 30% scrap.<br />PRIME material is offcuts/pressings from manufacturing – from ‘new’ steel.<br />OBSOLETE material comes from ‘old’ steel – used construction, manufacturing steel etc.<br />
  5. 5. Not the most “sexy” of raw materials, but vitally important to world steel production<br />No. 1 Busheling<br />Heavy Melt Scrap<br />Plate and Structural Scrap<br />Shredded Scrap<br />
  6. 6. Scrap is an important resource for the steel industries of many countries…<br />EAF Production - Many countries have a higher production of EAF (scrap based) production than BOF.<br />Countries with >50% EAF production<br />Source: SBB Forecaster<br />
  7. 7. …as can be seen in the cost breakdown for an EAF mill<br />83%<br />Source: SteelConsult analysis<br />
  8. 8. Though most of the worlds available scrap is based in the West, demand will come from the East…<br />EAF Production – Crude steel produced via EAF (2010)<br />Source: SBB Forecaster<br />
  9. 9. …Where, by 2020, 44% of all EAF based crude steel will be produced<br />Source: SBB Forecaster<br />
  10. 10. But coming back to the present, we need to look at the world’s scrap “pinch points”<br />US Midwest: 69mtpa EAF industry inland has to compete with the East coast exporting docks for material.<br />Rotterdam: Dockside exporter material is competed for by both Spanish and Italian importers, as well as Turkish importers.<br />Turkey: The world’s largest scrap importer, Hoovers up scrap Handymax-size vessel loads (circa 35,000t each) from the EU, USA, Middle East and Black-Sea bordering countries.<br />India, West Coast: The world’s most liquid containerised scrap import market. Like Turkey, sources from a variety of locations, but in smaller quantities.<br />North Asia: China, S. Korea and Taiwan form a cluster of scrap importers in the largest steel producing region of the world.<br />
  11. 11. Pinch points<br />US Midwest<br />
  12. 12. International demand for US scrap has grown strongly over the past 10 years<br />US Ferrous exports<br />Conservative growth of 10% pa<br />Million tonnes<br />Tenfold increase in 10 years<br />Est. 2011<br />Source: USITC<br />
  13. 13. Whilst domestic scrap consumption has been steady<br />US ferrous scrap consumed domestically<br />Million tonnes<br />Source: US Geological Survey<br />
  14. 14. Leading to a potential deficit in available scrap from 2016 onwards with implications for the domestic price of scrap<br />Million tonnes<br />US$/l.t<br />Tenfold increase in 10 years<br />Source:SBB, TSI and RMDAS<br />
  15. 15. Indeed, the last year has seen quite a bit of volatility in the market. When you look back even further, you see bigger swings<br />% Change week-on-week 2010 - 2011<br />Swings of 15%<br />Source:TSI<br />% Change month-on-month 2010 - 2011<br />Swings of 70%<br />Source:SBB<br />
  16. 16. Which will affect countries such like Turkey, the largest consumer of US ferrous scrap<br />US Exports H1 2011<br />Source: USITC<br />
  17. 17. You can also see the close price movements of scrap alternatives in the local market<br />US$<br />Source:SBB<br />
  18. 18. Pinch points<br />Turkey<br />
  19. 19. Indeed, Turkey is the largest importer of ferrous scrap in the world, with just over a fifth of cross-border trade<br />Top 10 importers 2010<br />Cross-border trade 2010<br />Source: BIR<br />Source: BIR<br />
  20. 20. And it isn’t about to stop importing scrap, with its EAF melting capacity increasing 21% by 2015<br />Million tonnes<br />Source: Colakoglu<br />
  21. 21. Additionally it is a lead indicator for long products, leading the FOB Wire mesh price by about a month<br />US$/t<br />YTD 2011 – Average 30% of Long product imports are sourced from Turkey<br />2010 – Average 47% of Long product imports are sourced from Turkey<br />Source: SBB<br />
  22. 22. It is an important regional marker<br />$USD/t<br />All prices $USD/t Turkish Price: TSI, all other prices SBB<br />
  23. 23. Perhaps unsurprisingly given Turkeys status as a steel exporter, there is a good relationship with the import price and rebar around the world<br />75% Correlation to SBB’s Rebar world price<br />US$/t<br />Source:SBB, TSI<br />
  24. 24. Pinch points<br />North Asia<br />China, S. Korea, Taiwan and Japan<br />
  25. 25. Japan is a regional exporter, with just over a fifth of new arisings off to the export docks<br />23.8mt<br />Source: Scrap Exports, customs data.<br />
  26. 26. To be consumed by the region’s steel powerhouses<br />Chinese EAF production more than doubled in ten years.<br />mt<br />Source: SBB Capacity Book<br />
  27. 27. China sees big swings in its imports<br />Scrap imports 2005-2010<br />mt<br />250%<br />67%<br />Source: BIR<br />
  28. 28. But will be an important player in the scrap market in the years to come<br />mt<br />Source: SBB, TSI, BIR<br />
  29. 29. With future demand squeezing regions like the US mid-west <br />US exports to Asia<br />Future EAF production<br />Source: USITC, SBB, TSI<br />
  30. 30. So what now….?<br />Scrap markets could see less downside than in the past.<br />But don’t fear China – it is an opportunistic buyer, rather than a compelled buyer.<br />Latin America, whilst not directly involved in the scrap trade, could do well by taking heed of market developments<br />Future capacity additions will need to be carefully matched to domestic scrap availability as the seaborne market becomes tighter<br />Scrap alternatives exist however do not have a liquid seaborne trade<br />TSI will add an Asian price series to complement its Turkish, US and Indian price series<br />
  31. 31. The Steel Index<br />Pricing<br />
  32. 32. Key Features<br />Precise weekly or daily reference prices<br /><ul><li>clear product specifications and pricing points
  33. 33. single price (not price range)
  34. 34. volume-weighted average</li></ul>Based on physical market transaction dataonly<br />Price series highly representativeof the market<br /><ul><li>over 550 ‘data providers’ from all points in supply chain</li></ul>Compiled by an independent, impartial organisation<br /><ul><li>no industry allegiances
  35. 35. reputable global brand</li></ul>Based on a transparent and verifiable methodology<br /><ul><li>published data collection process and price calculation algorithm
  36. 36. volume weighting applied to spot prices only </li></li></ul><li>Quick hedging example<br />US$/t<br />Source: TSI, FIS<br />
  37. 37. Coming up…<br />TSI Scrap Event 2011Thursday 17 November, New York City<br />Topics will include:<br />Global scrap market in 2011 and beyond: key drivers and pricing trends<br />US scrap market—new dynamics<br />The international scrap market—review of Turkey<br />Strategies to manage scrap price volatility—role of swaps, hedging and clearing<br />Derivatives: lessons from other sectors<br />Why would I use derivatives?<br />Register your interest with us today!<br />
  38. 38. Thank you for your attention!<br />Please visit us at our stand<br />JarekMlodziejewski<br />Jarek@thesteelindex.com<br />Tel: +44 207 645 9415<br />