The document provides a comprehensive overview of the ferrous scrap market, detailing the characteristics of ferrous scrap, its production processes, and its significant impact on various sectors, particularly in steel production using electric arc furnaces (EAFs) and basic oxygen furnaces (BOFs). It highlights Turkey's pivotal role as the world's largest scrap importer and discusses the volatility of scrap prices, which can affect downstream businesses and construction projects. Additionally, it outlines the methodology of The Steel Index (TSI) in publishing scrap prices, emphasizing its reliance on actual transaction data to provide accurate market information.

1. ‘The Ferrous Scrap Market’
The Steel Index
Jarek Mlodziejewski
Tim Hard
January 2011
© Copyright The Steel Index

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. 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. 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. 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 11
Source: TSI and SBB © Copyright The Steel Index

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. EAF Production - Many countries have a higher production
of 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 local
Countries with >50% geographic markets
EAF production
© Copyright The Steel Index

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. EAF Production – Exclude China and we have a different
picture.
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. Raw Material Costs – scrap currently accounts for
around 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
16.72
Assumptions:
Scrap rate: 100% 28.72
Electricity 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. Raw material costs – …and around 7-15% of BOF
production 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
21.49
Assumptions: 78.65
44.8
Scrap 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. Raw material costs – ...and scrap is a volatile commodity,
which poses headaches for EAF mill buyers, as well as downstream buyers.
$600
US$/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. Raw Material Costs - Iron ore prices also correlate with
scrap.
$500 $200
$450 $180
88% Correlation US$/t
US$/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. Scrap Trade – There will be over 120mt of scrap traded
this year.
Trade flows At current prices of around
US$470/t, the yearly scrap
Countries with >50% trade is worth US$ 56 billion
EAF production
Source: BIR and TSI © Copyright The Steel Index

15. Scrap Trade – Russian EAF capacity expansion will curtail their
exports, 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. Scrap Trade- An already structurally tight global market is set
to 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. 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 (000's t) vs. Price
$500 2,500
45
$450
40
$400 2,000
35
$350
30
$300 1,500
25
mt $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. 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. Turkeys’ Role – ...its diverse scrap sourcing affects many
domestic 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 Malta
Source: TSI, SBB and Turkish Statistical Institute © Copyright The Steel Index

20. The Steel Index (TSI)
The Premier Price Information Service
Weekly Daily Weekly
Prices You Can Trust
© Copyright The Steel Index

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. 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. 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 Publish
calculated Step4 Reference
Prices
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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. TSI’s Scrap Price Publication
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26. TSI’s Scrap Price Publication
© Copyright The Steel Index

27. © Copyright The Steel Index /27