Posted on 10/10/2016 in category Ferrous

BIR World Mirror on Ferrous Metals / Quarterly report - October 2016

by William Schmiedel, Sims Group Global Trade Corporation

Signals of better times ahead

Since our previous report, we have seen international ferrous scrap trading in what could be considered to be more historically normal ranges in respect to deltas if not actual price levels. Certainly, the lows and highs in this last quarter are still historically and economically cheap but the range has been within the more normal 5% bandwidth. We have also seen Chinese exports of finished and semi-finished steel decrease from June’s level of 10.9m tonnes to 9.1m tonnes. While this is a good sign, the latter total of 9.1m tonnes still shows that China is more than willing to continue to export its excess production at levels that exceed sound business practices.

In addition to the aforementioned decrease in Chinese exports, there are some other signals of better times ahead if we look around the industry. The most significant of these are iron ore pricing, coking coal pricing and mergers between Chinese mills. Iron ore prices have traded in ranges far in excess of the prognosticating experts: we have seen highs in the low US$ 60s per tonne and support levels above US$ 54. Coking coal prices seem to have strong support above US$ 195 per tonne while the mega merger between Baosteel and Wuhan has come to fruition.

The spike in coking coal prices should eventually increase the percentage of scrap used within the integrated sector of the steel industry; indeed, an integrated mill in Turkey has indicated that it will switch to a 20% scrap charge from under 10%. The economics of this change is sound in my view and, if followed by other integrated mills internationally (remember: this sector accounts for over 70% of world steel production), this should change the dynamics of the supply/demand continuum for steel scrap worldwide which, again in my opinion, is close to even prior to any change in integrated scrap usage (...)

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