Download - Ferrous scrap
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‘The Ferrous Scrap Market’
The Steel Index
Jarek MlodziejewskiTim Hard
January 2011
© Copyright The Steel Index
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
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• Steel is a „multi-cycling‟ material: it can be recycled repeatedly without degradation.
• Ferrous scrap is classed as either „prime‟ or „obsolete‟.
• Prime scrap material comprises off-cuts of new steel (by-products of manufacturing).
• Obsolete material represents redundant prior steel-based industrial production and consumption. It is primarily generated from discarded automotive and white product materials, or demolition of steel building structures and railways.
• 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 of 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 with between 90-100% of scrap.
• Basic Oxygen Furnaces (BOFs) can be charged with up to 30% scrap.
Ferrous Scrap – What is it?
400
420
440
460
480
500
520
540
560
580
600
25%
27%
29%
31%
33%
35%
37%
39%
41%
43%
Steel Scrap Produced mt
Steel Scrap Ratio Steel Scrap/Crude steel in %
Source: SBB Crude Steel Forecaster
% ratio falling due to 300mt of BOF capacity coming on stream (especially in China) compared with 80mt of new EAF capacity
mt
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Ferrous 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 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.
• Scrap yards, traders and brokers sales price margins.
• 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).
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300
350
400
450
500
550
500
550
600
650
700
750
800
Apr 10
May 10
Jun 10
Jul 10
Aug 10
Sep 10
Oct 10
Nov 10
Dec 10
Jan 11
Rebar N.Europe
Rebar S.Europe
Wire Rod Europe
Debar Turkey export FOB Turkish Port
Merchant Bar Turkey export FOB Turkish
port
Turkish Scrap(RHS)
Ferrous Scrap – What does it affect?
$USD/t $USD/t
The imported Turkish scrap price is important to a number of finished steel markets.
Source: TSI and SBB
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Ferrous Scrap – What does it affect?
0
20
40
60
80
100
120
140
0
100
200
300
400
500
600
700
Spread (RHS) Turkish Scrap LME Billet
Source: LME/TSI
Not least the LME billet price. The TSI Turkish #HMS
1&2 80:20 import and LME cash seller and settlement
prices show a weekly correlation of 82.4% correlation
over this period. The correlation of the average monthly
average prices over the same period rises to 91.4%.
However once you spread out the data set and split it
into quarters you will find that the average correlation
Q2 – 2009 to Q4 -2010 is only 74%. Furthermore, there
is no consistency over the period of time; with a low of
49% and a high of 95%
$USD/t $USD/t
Quarterly correlation – LME and Turkish Scrap
Q2 – 2009 49 %
Q3 – 2009 74 %
Q4 – 2009 75 %
Q1 – 2010 91 %
Q2 – 2010 95 %
Q3 – 2010 56 %
Q4 – 2010 76 %
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Mid-East17mt
South America
16mt
Africa11mt
Asia168mt
North America
68mt
EU-2772mt
EAF Production - Many countries have a higher production
of EAF (scrap based) production than BOF.
EAF mill capacities tend to cluster around the 300 kt/year level as well as near the 1.2mt/year level. This reflects the economic scale for EAF plants and strategies to serve local
geographic marketsCountries with >50%
EAF production
Regional yearly EAFproduction
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Source: SBB Crude Steel Forecaster
EAF Production - ...and steel scrap use is growing,
leading to increased global trade of scrap.
26%
27%
28%
29%
30%
31%
32%
33%
500
700
900
1100
1300
1500
1700
1900
World crude steel production
mt
BOF EAF % by EAF
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.
GFC
300
350
400
450
500
550
World crude steel via EAF in
mt
EAF
Source: SBB Crude Steel Forecaster
GFC
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...
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Source: SBB Crude Steel Forecaster
EAF Production – Exclude China and we have a different
picture.
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 total
The EAF route, as a ratio to total steel production, has been rising steadily if China is taken out of the equation
© Copyright The Steel Index
222.69265.05
310.97
423.82
241.47
380
27.41
27.53
29.87
31.94
30.35
28.72
14.54
15.05
16.82
18.59
17.67
16.72
2005 2006 2007 2008 2009 2010e
Operational production cost/t liquid steel EU EAF Mill, US$/t
Scrap/pig iron Alloys Electricity Electrodes EAF Refractories Scrap credit Labour & maintenance Other
Source: SteelConsult analysis
Assumptions:Scrap rate: 100%Electricity consumption: 490kWh/t
Raw Material Costs – scrap currently accounts for
around 83% of the EAF mill production structure...
83%Scrap
Indicative
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Source: SteelConsult analysis
Assumptions:Scrap rate: 18%
Raw material costs – …and around 7-15% of BOF
production costs....
15%Scrap
159.05 156.19188.78
380.95
184.51
304.26
41.9 49.06
57.33
78.65
44.66
64.02
15.32 15.46
16.86
18.03
17.14
16.21
39.43 40.79
45.6
49.82
47.34
44.8
19.99 20.73
22.35
23.9
22.71
21.49
2005 2006 2007 2008 2009 2010e
Operational production cost/t liquid steel EU BOF Mill, US$/t
Hot metal Scrap Fluxes BOF gas credit Scrap credit Labour & Maintenance Other
Indicative
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Raw 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
$600
Jan-0
9
Feb-0
9
Mar-
09
Apr-
09
May-0
9
Jun-0
9
Jul-
09
Aug-0
9
Sep-0
9
Oct-
09
Nov-0
9
Dec-0
9
Jan-1
0
Feb-1
0
Mar-
10
Apr-
10
May-1
0
Jun-1
0
Jul-
10
Aug-1
0
Sep-1
0
Oct-
10
Nov-1
0
Dec-1
0
Jan-1
1
+121%
Hard Coking Coal (FOB E. Australia)
Iron Ore 62%FE (CFR China)
Scrap HMS #1&2 80:20 (CFR Turkey)
+29%-26%
• Steel and ore price cycle amplitudes are increasing.
• 2004-2005 saw a 60% steel price movement peak-to-trough.
• January 2009 to 2011 has so far seen a121% increase trough-to-peak for scrap.
• Price volatility and future price uncertainty is detrimental to all companies participating in the supply chain in many ways:- commercial negotiations- relationship management- production planning- raising finance, cost of capital
Source: Scrap and Iron Ore - TSI, Coking coal - SBB
US$/t
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Raw Material Costs - Iron ore prices also correlate with
scrap.
Price volatility is set to continue in the future, with scrap and iron ore
prices 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
$500
Scrap HMS 80:20 $USD CFR Turkey Iron Ore 62%Fe CFR China - SBB(RHS)
Source: TSI
US$/t US$/t88% Correlation
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Scrap Trade – There will be over 120mt of scrap traded
this year.
Trade flows
Countries with >50%
EAF production
At current prices of around US$470/t, the yearly scrap
trade is worth US$ 56 billion
Source: BIR and TSI
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Scrap Trade – Russian EAF capacity expansion will curtail their
exports, while Asian demand stokes world export demand.
10 m/t EAF
4 m/t BOF
7 m/t EAF
Top 4 countries with
upcoming EAF
capacity – up to 2013
+7 mt EAF
+10 mt EAF
+ 4mt EAF
+10 mt EAF
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Scrap Trade- An already structurally tight global market is set
to tighten further.
Country Tariff Rate on scrap
Argentina 20%
China 40%
Egypt 500-1500EGP/t
India 15%
Iran 50%
Kazakhstan15% min 20EUR/t and export
licence
Kenya 25% and export ban
Malaysia10% and non-automatic export
licence
Russian Federation 15%, min 15EUR/t
Ukraine 16.4EUR/t and export licence
Vietnam 25%
UAE Dirham 250/t
Argentina Temp. Export ban
South Africa Export permit
Azerbaijan Export ban
Indonesia Export ban
Jordan Export ban
Sri Lanka Export ban
Uruguay Export ban
Used to be key exporters of
ferrous scrap.
-5
0
5
10
15
20
25
2005 2006 2007 2008 2009 2010
World Scrap Exports (mt)
USA EU Japan
Russia Ukraine Linear (Russia)
Source: BIR World ferrous report
Source: OECD
Russia CAGR -38%
Will become major importers of
ferrous scrap in the future.
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Source: TSI, SBB and Turkey Statistical Institute
-
500
1,000
1,500
2,000
2,500
$-
$50
$100
$150
$200
$250
$300
$350
$400
$450
$500
Jan-0
9
Feb-0
9
Mar-
09
Apr-
09
May-0
9
Jun-0
9
Jul-
09
Aug-0
9
Sep-0
9
Oct-
09
Nov-0
9
Dec-0
9
Jan-1
0
Feb-1
0
Mar-
10
Apr-
10
May-1
0
Jun-1
0
Jul-
10
Aug-1
0
Sep-1
0
Oct-
10
Nov-1
0
Dec-1
0
Imports (000's t) vs. Price
Total Turkish scrap imports Scrap HMS 80:20 $USD CFR Turkey
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.
Source: BIR World ferrous report
Scrap Trade – The world’s largest importer of scrap...
0
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30
35
40
45
50
2005 2006 2007 2008 2009 2010e
Top 5 Importers
Turkey China South Korea India Taiwan
mt
$USD/t
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300
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500
550
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
Turkeys’ 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. 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%
All prices $USD/t. Turkish price: TSI, all other prices SBB.
$USD/t
All prices $USD/t. Turkish price: TSI, all other prices SBB.
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European Union
50%
US/Canada
26%
CIS/Balkans
15%
MENA
8%
Other
1%
Germany
Austria
Belgium
Bulgaria
DenmarkFrance
Estonia Finland
Holland
England Sweden
Italy
Latvia
LithuaniaMalta
Hungary
Poland
RomaniaSlovenia
European Union
56%US/Canada
22%
CIS/Balkans
13%
MENA
7%
Other
2%
GermanyAustria
Belgium
Bulgaria
Denmark
France EstoniaFinland
Holland
EnglandSweden
Italy
Latvia
Lithuania
Malta
Hungary
Poland
Romania
Slovenia
Turkeys’ Role – ...its diverse scrap sourcing affects many
domestic markets.
Source: TSI, SBB and Turkish Statistical Institute
2009
2010
Turkish buyers have
increasingly looked
towards their neighbours
for their scrap supply.
The shorter lead times
and familiarity with
European business
practises have lead to
closer relationships and
better contacts.
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• Prices compiled from verifiable industry transaction price data.
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providers’).
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Introduction to The Steel Index (TSI)
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• 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
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Introduction to The Steel Index (TSI)
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TransactionData Sample
Step1Step2
High & low excluded
Outliers excluded
PublishTSI Reference
Prices
FinalData Set
Step3
Volume-weighted averages calculated
Buy/Sell balance
Step4
Submits price data to TSI
using secure online system
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Data Provider
TSI’s Underlying Methodology
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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.
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TSI’s Scrap Price Publication
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TSI’s Scrap Price Publication
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