Posted on 03 Jan 2022
Turkish deepsea import scrap prices are expected to remain at elevated levels through the first quarter of 2022, supported by supply-side factors and intensifying competition for high Fe-yield scrap, sources said.
S&P Global Platts assessed Turkish imports of premium heavy melting scrap 1/2 (80:20) at $463/mt CFR on Dec. 31, unchanged on the day. The assessment averaged $463.43/mt CFR over 2021, sharply up from a 2020 average of $286.75/mt CFR, with the assessment also reaching an all-time high of $515.75/mt CFR on May 24.
The LME scrap forward curve over January-March 2022 is in a soft backwardation, with January contracts assessed by Platts at $460/mt on Dec. 31, while March contracts were at $439.50/mt. This suggests futures traders expect some softening in physical prices in the near-term, but prices are expected to remain firm.
Sharp increases in ferrous scrap export duties in Russia and Ukraine are likely to reduce the choice of suppliers for Turkish mills in 2022, in both the deepsea and shortsea markets, increasing competition for material of other origins.
In early December, Ukraine's legislative assembly voted to triple the country's customs duty for steel scrap exports to Eur180/mt ($203/mt) from Eur58/mt. In addition, the Russian government ruled in mid-November to raise the country's customs duty on ferrous scrap exports to Eur100/mt ($113/mt) or 5% (whichever is greater), up from Eur70/mt, with the new rate to be applied for 180 days from Jan. 1, 2022.
Market participants will also be closely watching for any changes to the European Commission's proposed legislation on waste shipments, published Nov. 17. Under the proposal, EU ferrous and non-ferrous scrap metal exports to non-OECD countries will be only be allowed if they can be managed sustainably.
Turkey, an OECD member and thus unaffected by the proposal, could theoretically benefit in terms of reduced competition for material, should the legislation be approved in its current guise.
Deepsea scrap exporters continue to voice expectations that the premiums for higher Fe-yield grades, such as shredded scrap, bonus scrap and PNS, over HMS 1/2 (80:20) in bulk cargoes to Turkey should increase to as high as $30-$40/mt in the near-term.
In 2021, Benelux-origin deals in mid-November 2021 saw shredded scrap priced as high as $23-$26/mt above HMS 1/2 (80:20), above recent historical norms of $5-$10/mt.
Competition for higher grade scrap is intensifying, especially in the US domestic market, which could again support scrap price premiums into Turkey. US open market demand for ferrous scrap could grow by 8.75 million mt through 2023 as slated electric arc furnace capacity expansions come online, according to S&P Global Platts estimates.
The US is a key import origin of ferrous scrap for Turkish steel producers. Turkey imported 3.04 million mt of US-origin ferrous scrap in January-October 2021, down from 3.75 million mt in the corresponding period of 2020.
The US domestic ferrous scrap market has also undergone a wave of consolidation, with several large US mills acquiring their own network of scrap yards in a bid to secure supply, especially of prime scrap.
While supply-side factors will remain vital, Turkish producers will hope for improved finished steel demand, as well as relief from high energy costs over the winter period, which has affected mill margins and caused many producers to cut production or announce maintenance stoppages for January 2022.
"I am expecting growth-intended policies to continue in the first half of 2022. Although interest rate hikes could be seen in the second half of the year, particularly in the US, cheap money could continue to support demand for a while further," Ugur Dalbeler, CEO of major Turkish steel producer Colakoglu, told S&P Global Platts in late December. Demand, rather than supply, will be the main driver of steel price trends in 2022, he added.
Turkish export rebar demand has been weak, with mills unable to lower offers amid firm scrap prices and rising production costs. Consequently, no large volume sales have been heard in recent months to regular buyers in Asia. However, a few sales to Canada for February/March 2022 shipment were reported to be booked in mid-November.
Market participants will also watch currency volatility closely, which has badly affected Turkish domestic finished steel demand in the second half of 2021. The Turkish lira depreciated almost 147% over 2021, from Lira 7.4037 against the US dollar on Jan. 4 to an all-time low of Lira 18.2662 on Dec. 20.
The lira partially recovered some losses against the US dollar over Dec. 20-22 after President Recep Tayyip Erdogan said the government would cover losses for lira deposit holders should losses against foreign currencies exceed banks' interest rates.
However, market participants expect this to be a temporary reprieve unless the government changes its policy of cutting interest rates despite soaring inflation.
Source:Platts
