iron ore vs scrap imparity hit mini-mills in turkey

15
Turkish mills should undercut ferrous scrap prices by raising billets purchases 03 June, 2015 Andrey Pupchenko, Deputy Managing Director, Metal Expert

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Page 1: Iron ore vs scrap imparity hit mini-mills in Turkey

Turkish mills should undercut ferrous scrap prices by raising billets purchases

03 June, 2015

Andrey Pupchenko, Deputy Managing Director, Metal Expert

Page 2: Iron ore vs scrap imparity hit mini-mills in Turkey

Contents

1) Turkish mini-mills keep capacity utilization rather high, thus overstocking the rebar market

2) High scrap consumption amid decreasing stocks pushed up scrap prices

3) Stiff competition in the rebar market means low export prices could not compensate the growth in expenses

4) Margins of Turkish exporters is almost zero due to low rebar prices

© Metal Expert

Page 3: Iron ore vs scrap imparity hit mini-mills in Turkey

© Metal Expert

Turkish mini-mills keep capacity utilization at rather high level, thus overstocking the rebar

market

Rebar capacity utilization in Turkey

Page 4: Iron ore vs scrap imparity hit mini-mills in Turkey

© Metal Expert

In April-May Turkish mills had to accept higher scrap prices due to re-stocking

- 250'000 t

Dynamics of scrap inventory in Turkey

Page 5: Iron ore vs scrap imparity hit mini-mills in Turkey

Turkish mini-mills have positive and sustainable margin in local market only

© Metal Expert

Page 6: Iron ore vs scrap imparity hit mini-mills in Turkey

The fundamental factor:

scrap should be cheaper otherwise Turkish mills could not compete with BOF-based longs

suppliers (from China) and EAF-based suppliers fed by DRI/HBI (from the GCC)

© Metal Expert

Page 7: Iron ore vs scrap imparity hit mini-mills in Turkey

© Metal Expert

UAE billets market

Turkish mills lose competiveness

0

50

100

150

200

250

0

100

200

300

400

500

600Jan.1

3

Mar.

13

May.1

3

Jul.13

Sep.1

3

Nov.1

3

Jan.1

4

Mar.

14

May.1

4

Jul.14

Sep.1

4

Nov.1

4

Ja

n.1

5

Mar.

15

Ma

y.1

5

$/t

Turkish billet (EAF steel/scrap)

Chinese billet (BOF steel)

The average difference in costs doubled

Page 8: Iron ore vs scrap imparity hit mini-mills in Turkey

© Metal Expert

Metal Expert assessment of the price parity in iron ore and ferrous scrap: if iron ore price is 60 $/t CFR, scrap

should be 230 $/t CFR Turkey, assuming coking coal price is 90 $/t FOB Australia

40

45

50

55

60

65

70

75

80

85

211 216 221 226 231 236 241 246 251

Iro

n o

re c

on

ce

ntr

ate

(6

1.5

%),

Ch

ina

, c&

f fr

om

A

us

tra

lia

, $/t

Ferrous scrap, Turkey, c&f from USA, $/t

Page 9: Iron ore vs scrap imparity hit mini-mills in Turkey

The structure of Turkey's ferrous scrap import

Scrap from the US contributes only a fraction of Turkey's market, although HMS 1&2 (80/20) is still

the benchmark

© Metal Expert

37%

13%20%

29%1%

2013

40%

23%

14%

20% 3%

2015

Western Europe

CIS

Eastern Europe

North America

Others

Page 10: Iron ore vs scrap imparity hit mini-mills in Turkey

340

390

440

490

540

590

Ja

n.1

3

Fe

b.1

3

Ma

r.1

3

Apr.

13

Ma

y.1

3

Ju

n.1

3

Ju

l.13

Aug

.13

Sep

.13

Oct.1

3

No

v.1

3

De

c.1

3

Ja

n.1

4

Fe

b.1

4

Ma

r.1

4

Apr.

14

Ma

y.1

4

Ju

n.1

4

Ju

l.14

Aug

.14

Sep

.14

Oct.1

4

No

v.1

4

De

c.1

4

Ja

n.1

5

Fe

b.1

5

Ma

r.1

5

Apr.

15

Ma

y.1

5

$/t

Import prices of billet from CIS to Turkey, crf

Square billet cost (EAF steel) dynamics in Turkey

Since last December, CIS billet is a low-cost alternative to local billet produced in Turkey

from American scrap

© Metal Expert

Page 11: Iron ore vs scrap imparity hit mini-mills in Turkey

Turkey's billet import dynamics © Metal Expert

0

200

400

600

800

1000

1200

1400

Q1

14

Q2

14

Q3

14

Q4

14

Q1

15

'00

0 t

Plus 470'000 t

CIS-origin billets expanded its presence in the Turkish market

Page 12: Iron ore vs scrap imparity hit mini-mills in Turkey

There are 2 options for Turkish mini-mills

1) to reduce scrap consumption (especially from the US) by expanding billets purchasing (from Russia,

Ukraine, China, of course, and… Iran)

2) to accept raising scrap prices and operational losses. The possibility to cover growing expenses by raising

finished products prices is limited

© Metal Expert

Page 13: Iron ore vs scrap imparity hit mini-mills in Turkey

© Metal Expert

31

5

31

5

24

9

25

8 26

3

28

6

27

0

25

5

24

0

230

240

250

260

270

280

290

300

310

320

De

c.1

4

Ja

n.1

5

Fe

b.1

5

Ma

r.1

5

Ap

r.1

5

Ma

y.1

5

Ju

n.1

5

Ju

l.1

5

Au

g.1

5

$/t

* - HMS 1&2 (80:20)

Price forecast of US scrap* imports into the Turkey, C&F

Metal Expert's ferrous scrap forecasts (based on the 1st option)

Page 14: Iron ore vs scrap imparity hit mini-mills in Turkey

Questions? Contact us: Andrey Pupchenko Metal Expert +38 (056) 370 12 07 (ext. 160) [email protected]

Page 15: Iron ore vs scrap imparity hit mini-mills in Turkey

Metal Expert provides exclusive data in monthly report World Steel Markets

- [NEW] Rebar output by producer in Turkey

- Ferrous scrap inventory at Turkish mills (actual for the time of

publishing – every mid-month)

- Margin assessment (market price minus estimated costs) for main export destinations and domestic deliveries

- Comparison of in-house billet production cost (using imported scrap) and prices for billet imports from CIS

- The forecasts of ferrous scrap consumption and prices for the next three months

Subscription department +38 056 239 88 50, +38 056 370 12 06, +38 056 370 12 07 [email protected]