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Ferrous scrap

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Ferrous scrap

  1. 1. © Copyright The Steel Index‘The Ferrous Scrap Market’The Steel IndexJarek MlodziejewskiTim HardJanuary 2011
  2. 2. © Copyright The Steel IndexAgenda• 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
  3. 3. © Copyright The Steel Index• Steel is a „multi-cycling‟ material: it can berecycled repeatedly without degradation.• Ferrous scrap is classed as either „prime‟ or„obsolete‟.• Prime scrap material comprises off-cuts of newsteel (by-products of manufacturing).• Obsolete material represents redundant priorsteel-based industrial production andconsumption. It is primarily generated fromdiscarded automotive and white productmaterials, or demolition of steel buildingstructures and railways.• It is a “greener” steel feedstock, as „virgin ironunits‟ (i.e. those mined in ore form) require morepower, processing and transportation than scrap.• Over 1400kg of iron ore, 400kg of coal and 55kgof limestone is saved for a tonne of scrap used.• It is the world‟s most recycled material. Over 80%of consumer steel is recycled• Electric Arc Furnaces (EAFs) can be charged withbetween 90-100% of scrap.• Basic Oxygen Furnaces (BOFs) can be chargedwith up to 30% scrap.Ferrous Scrap – What is it?40042044046048050052054056058060025%27%29%31%33%35%37%39%41%43%Steel Scrap Produced mtSteel Scrap Ratio Steel Scrap/Crude steel in %Source: SBB Crude Steel Forecaster% ratio falling due to 300mt ofBOF capacity coming on stream(especially in China) comparedwith 80mt of new EAF capacitymt
  4. 4. © Copyright The Steel IndexFerrous Scrap – What does it affect?• 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 scrapcosts as these products are typically produced via the EAF steelmakingprocess.• Construction company margins. Long-range, fixed-price constructionprojects are directly affected by the increasing price volatility of thesefinished steel goods.• Scrap yards, traders and brokers sales price margins.• We cannot forget producers of flat products either, as high grade scrap isused in the production steel coil and sheet products for the construction,automotive and manufacturing industries (especially in North America).
  5. 5. © Copyright The Steel Index300350400450500550500550600650700750800Apr10May10Jun10Jul10Aug10Sep10Oct10Nov10Dec10Jan11Rebar N.EuropeRebar S.EuropeWire Rod EuropeDebar Turkey export FOB Turkish PortMerchant Bar Turkey export FOB TurkishportTurkish Scrap(RHS)Ferrous Scrap – What does it affect?$USD/t $USD/tThe imported Turkish scrap price is important to a number of finished steel markets.Source: TSI and SBB
  6. 6. © Copyright The Steel IndexFerrous Scrap – What does it affect?0204060801001201400100200300400500600700Spread (RHS) Turkish Scrap LME BilletSource: LME/TSINot least the LME billet price. The TSI Turkish #HMS1&2 80:20 import and LME cash seller and settlementprices show a weekly correlation of 82.4% correlationover this period. The correlation of the average monthlyaverage prices over the same period rises to 91.4%.However once you spread out the data set and split itinto quarters you will find that the average correlationQ2 – 2009 to Q4 -2010 is only 74%. Furthermore, thereis no consistency over the period of time; with a low of49% and a high of 95%$USD/t $USD/tQuarterly correlation – LME and Turkish ScrapQ2 – 2009 49 %Q3 – 2009 74 %Q4 – 2009 75 %Q1 – 2010 91 %Q2 – 2010 95 %Q3 – 2010 56 %Q4 – 2010 76 %
  7. 7. © Copyright The Steel IndexMid-East17mtSouthAmerica16mtAfrica11mtAsia168mtNorthAmerica68mtEU-2772mtEAF Production - Many countries have a higher productionof EAF (scrap based) production than BOF.EAF mill capacities tend to cluster around the 300 kt/yearlevel as well as near the 1.2mt/year level. This reflects theeconomic scale for EAF plants and strategies to serve localgeographic marketsCountries with >50%EAF productionRegionalyearly EAFproduction
  8. 8. © Copyright The Steel IndexSource: SBB Crude Steel ForecasterEAF Production - ...and steel scrap use is growing,leading to increased global trade of scrap.26%27%28%29%30%31%32%33%50070090011001300150017001900World crude steel productionmtBOF EAF % by EAFGiven that the world’s steel recycling ratio has fallen significantly as emerging marketsconsume steel and produce little scrap, the market has become structurally tighter thanthose for iron ore and coal.GFC300350400450500550World crude steel via EAF inmtEAFSource: SBB Crude Steel ForecasterGFCThe global financial crisis hit construction markets (which EAF producers primarily serve)particularly hard: dragging down the trend line in 2009: however, construction markets arerecovering...
  9. 9. © Copyright The Steel IndexSource: SBB Crude Steel ForecasterEAF Production – Exclude China and we have a differentpicture.20%25%30%35%40%45%50%2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010e 2011e 2012e 2013e 2014e 2015e%EAF route excluding China %EAF Route World totalThe EAF route, as a ratio to total steel production, has been rising steadilyif China is taken out of the equation
  10. 10. © Copyright The Steel Index222.69265.05310.97423.82241.4738027.4127.5329.8731.9430.3528.7214.5415.0516.8218.5917.6716.722005 2006 2007 2008 2009 2010eOperational production cost/t liquid steel EU EAF Mill, US$/tScrap/pig iron Alloys Electricity Electrodes EAF Refractories Scrap credit Labour & maintenance OtherSource: SteelConsult analysisAssumptions:Scrap rate: 100%Electricity consumption: 490kWh/tRaw Material Costs – scrap currently accounts foraround 83% of the EAF mill production structure...83%ScrapIndicative
  11. 11. © Copyright The Steel IndexSource: SteelConsult analysisAssumptions:Scrap rate: 18%Raw material costs – …and around 7-15% of BOFproduction costs....15%Scrap159.05 156.19188.78380.95184.51304.2641.9 49.0657.3378.6544.6664.0215.32 15.4616.8618.0317.1416.2139.43 40.7945.649.8247.3444.819.99 20.7322.3523.922.7121.492005 2006 2007 2008 2009 2010eOperational production cost/t liquid steel EU BOF Mill, US$/tHot metal Scrap Fluxes BOF gas credit Scrap credit Labour & Maintenance OtherIndicative
  12. 12. © Copyright The Steel IndexRaw material costs – ...and scrap is a volatile commodity,which poses headaches for EAF mill buyers, as well as downstream buyers.$-$100$200$300$400$500$600Jan-09Feb-09Mar-09Apr-09May-09Jun-09Jul-09Aug-09Sep-09Oct-09Nov-09Dec-09Jan-10Feb-10Mar-10Apr-10May-10Jun-10Jul-10Aug-10Sep-10Oct-10Nov-10Dec-10Jan-11+121%Hard Coking Coal(FOB E. Australia)Iron Ore 62%FE(CFR China)Scrap HMS #1&2 80:20(CFR Turkey)+29%-26%• Steel and ore price cycle amplitudes areincreasing.• 2004-2005 saw a 60% steel pricemovement peak-to-trough.• January 2009 to 2011 has so far seena121% increase trough-to-peak forscrap.• Price volatility and future priceuncertainty is detrimental to allcompanies participating in the supplychain in many ways:- commercial negotiations- relationship management- production planning- raising finance, cost of capitalSource: Scrap and Iron Ore - TSI, Coking coal - SBBUS$/t
  13. 13. © Copyright The Steel IndexRaw Material Costs - Iron ore prices also correlate withscrap.Price volatility is set to continue in the future, with scrap and iron oreprices likely to show an increasing correlation$-$20$40$60$80$100$120$140$160$180$200$50$100$150$200$250$300$350$400$450$500Scrap HMS 80:20 $USD CFR Turkey Iron Ore 62%Fe CFR China - SBB(RHS)Source: TSIUS$/t US$/t88% Correlation
  14. 14. © Copyright The Steel IndexScrap Trade – There will be over 120mt of scrap tradedthis year.Trade flowsCountries with >50%EAF productionAt current prices of aroundUS$470/t, the yearly scraptrade is worth US$ 56 billionSource: BIR and TSI
  15. 15. © Copyright The Steel IndexScrap Trade – Russian EAF capacity expansion will curtail theirexports, while Asian demand stokes world export demand.10 m/t EAF4 m/t BOF7 m/t EAFTop 4 countries withupcoming EAFcapacity – up to 2013+7 mt EAF+10 mt EAF+ 4mt EAF+10 mt EAF
  16. 16. © Copyright The Steel IndexScrap Trade- An already structurally tight global market is setto tighten further.Country Tariff Rate on scrapArgentina 20%China 40%Egypt 500-1500EGP/tIndia 15%Iran 50%Kazakhstan15% min 20EUR/t and exportlicenceKenya 25% and export banMalaysia10% and non-automatic exportlicenceRussian Federation 15%, min 15EUR/tUkraine 16.4EUR/t and export licenceVietnam 25%UAE Dirham 250/tArgentina Temp. Export banSouth Africa Export permitAzerbaijan Export banIndonesia Export banJordan Export banSri Lanka Export banUruguay Export banUsed to be key exporters offerrous scrap.-505101520252005 2006 2007 2008 2009 2010World Scrap Exports (mt)USA EU JapanRussia Ukraine Linear (Russia)Source: BIR World ferrous reportSource: OECDRussiaCAGR-38%Will become major importers offerrous scrap in the future.
  17. 17. © Copyright The Steel IndexSource: TSI, SBB and Turkey Statistical Institute-5001,0001,5002,0002,500$-$50$100$150$200$250$300$350$400$450$500Jan-09Feb-09Mar-09Apr-09May-09Jun-09Jul-09Aug-09Sep-09Oct-09Nov-09Dec-09Jan-10Feb-10Mar-10Apr-10May-10Jun-10Jul-10Aug-10Sep-10Oct-10Nov-10Dec-10Imports (000s t) vs. PriceTotal Turkish scrap imports Scrap HMS 80:20 $USD CFR TurkeyThe US and Europe are the primary producers of steel scrap.Turkey, as the largest importer of scrap in the world, is a key consumer of world scrap,affecting domestic producers and consuming both EU and US origin material.Source: BIR World ferrous reportScrap Trade – The world’s largest importer of scrap...051015202530354045502005 2006 2007 2008 2009 2010eTop 5 ImportersTurkey China South Korea India Taiwanmt$USD/t
  18. 18. © Copyright The Steel Index300350400450500550Apr-10 May-10 Jun-10 Jul-10 Aug-10 Sep-10 Oct-10 Nov-10 Dec-10 Jan-11HMS 80:20 CFR Turkey Shredded N.Europe Dom. Del.Shredded Rotterdam Export Shredded / N.Am export FOB E. CoastTurkeys’ Role – ...and an important regional marker...TSI HMS 80:20 CFR Turkey Shredded N.Europe Dom. Del. Shredded Rotterdam Export Shredded N.Am export FOB E. CoastApr-10 456 422.5 447.5 396May-10 381 347.5 367.5 344.5Jun-10 324 308.5 324 312.5Jul-10 349 306 338.5 312.5Aug-10 395 338.5 367.5 335Sep-10 399 354.5 382.5 364Oct-10 377 350.5 345 337Nov-10 401 342.5 357 356.5Dec-10 460 396 409 399Jan-11 515 472.5 480 453Correlation to TSI Turkish Scrap: 93.00% 92.10% 95.80%All prices $USD/t. Turkish price: TSI, all other prices SBB.$USD/tAll prices $USD/t. Turkish price: TSI, all other prices SBB.
  19. 19. © Copyright The Steel IndexEuropean Union50%US/Canada26%CIS/Balkans15%MENA8%Other1%GermanyAustriaBelgiumBulgariaDenmarkFranceEstonia FinlandHollandEngland SwedenItalyLatviaLithuaniaMaltaHungaryPolandRomaniaSloveniaEuropean Union56%US/Canada22%CIS/Balkans13%MENA7%Other2%GermanyAustriaBelgiumBulgariaDenmarkFrance EstoniaFinlandHollandEnglandSwedenItalyLatviaLithuaniaMaltaHungaryPolandRomaniaSloveniaTurkeys’ Role – ...its diverse scrap sourcing affects manydomestic markets.Source: TSI, SBB and Turkish Statistical Institute20092010Turkish buyers haveincreasingly lookedtowards their neighboursfor their scrap supply.The shorter lead timesand familiarity withEuropean businesspractises have lead tocloser relationships andbetter contacts.
  20. 20. © Copyright The Steel IndexThe Premier Price Information ServicePrices You Can TrustWeekly WeeklyDailyThe Steel Index (TSI)
  21. 21. © Copyright The Steel Index• Prices compiled from verifiable industry transaction price data.• Transaction data submitted to TSI confidentially by companiesbuying and selling relevant products (over 500 registered ‘dataproviders’).• Fully transparent and verifiable processes.• Unique consistent methodology applied worldwide.• Available on-line and by e-mail.The Premier Price Information ServiceUnique, fact-based and verifiable approach used tocompile all reference prices.Introduction to The Steel Index (TSI)
  22. 22. © Copyright The Steel Index• The Steel Index was launched in 2006 specifically to respond to theneed 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 datapoints: a volume-weighted average. It is not a journalistic assessment.• Pioneering approach to compiling steel price information – using onlytransaction data, suitable for indexing and price risk management.The Premier Price Information ServiceIntroduction to The Steel Index (TSI)
  23. 23. © Copyright The Steel IndexLEGALAGREEMENTTransactionData SampleStep1Step2High & lowexcludedOutliersexcludedPublishTSIReferencePricesFinalData SetStep3Volume-weightedaveragescalculatedBuy/SellbalanceStep4Submits pricedata to TSIusing secureonline systemThe SteelIndexDataProviderTSI’s Underlying Methodology
  24. 24. © Copyright The Steel IndexTSI’s Scrap Price Publication• Submissions of actual physical spot market transactions aresubmitted to TSI throughout the week, up until the deadline of 11.00GMT each Friday.• The data set is then subjected to an analysis to remove outliers,with the remaining data points being volume-weighted to produce asingle average price. This methodology firmly grounds the numberin the physical market.• TSI publishes scrap prices to our subscribers each Friday at 12.30GMT (apart from UK public holidays, in which case prices arepublished the following UK business day).• Prices are published online and by email, with associated marketcommentary and other relevant market information.
  25. 25. © Copyright The Steel IndexTSI’s Scrap Price Publication
  26. 26. © Copyright The Steel IndexTSI’s Scrap Price Publication
  27. 27. © Copyright The Steel Index /27

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