President’s market review
After a strong first quarter to 2022, buoyed by hopes of the far-reaching easing of COVID restrictions and by stimulus programmes announced by major economies, iron scrap prices in Europe and Turkey reached their highest levels in decades this April.
The first quarter was marked by geopolitical and macroeconomic issues. The escalating energy crisis in Europe last autumn and the sharp rise in producer prices owing to supply chain problems and global lockdown measures led to a continuation of the commodity boom that has been ongoing since March 2020. The Ukraine conflict has intensified this trend significantly.
The far-reaching sanctions against Russia have resulted in a sharp rise in the prices of steel and semi-finished steel products. Export prices for steel scrap also rose significantly, facilitated by the scarce availability of new scrap as a result of the global automotive industry continuing to suffer from shortages of chips and other important components (such as cable harnesses from Ukraine). Against this backdrop, production figures steadily corrected downwards.
As the main importers of steel scrap, Turkish steel mills benefited from sanctions against Russia and production outages in Ukraine after China was also unable to meet the demand for long steel and semi-finished steel products owing to seasonally weak production in the first quarter. In addition, there were increased inquiries from Europe as reinforcing steel in Europe - when including European import duties of 25% - was still much more expensive than Turkish material.
Prices for Turkish reinforcing steel peaked at over US$ 1000 per tonne FOB in April, allowing producers to more than offset their sharply increased energy and personnel costs. The price of HMS 1&2 (80:20) cfr Turkey duly exceeded US$ 650 per tonne. The European market followed export prices. According to many steel mills, order books were well filled in the first quarter; however, logistics in Europe continued to deteriorate steadily and, in addition to the massive increase in electricity prices, this dampened demand for steel scrap in Germany and elsewhere in Europe.
Global steel production fell by 6.8% to 456.6 million tonnes in the first three months of the year owing to the Ukraine crisis and the decline in China due in part to the Winter Olympics and carbon containment measures. Only key scrap importer India recorded an increase in crude steel production of 5.9% in January-March 2022.
In its April 2022 short-range outlook, the World Steel Association forecasts steel demand to grow by only 0.4% this year after increasing 2.7% in 2021. In 2023, steel demand is projected to increase by a further 2.2% to 1.881 billion tonnes. The forecast was made against the backdrop of the Ukraine crisis and remains fraught with uncertainty.
Global economic indicators showed healthy economic growth in the first quarter but, at the end of this period, dark clouds were increasingly moving in. Calls grew louder for monetary policy measures to contain inflation and central banks began to raise their key interest rates to counter escalating price increases; China imposed lockdowns in key economic centres to contain COVID outbreaks; and the Ukraine crisis continued unabated as economic sanctions against Russia hardened the fronts between NATO states and Russia’s President Putin. It quickly became clear that the Ukraine conflict was likely to continue for some time to come and that the economic consequences, especially for Europe, could be much stronger than previously expected.
The mood within industry tipped quite quickly and was reflected in declines in purchasing manager indexes in the manufacturing sector and in the Ifo index. Under the impact of the Ukraine conflict, the World Bank lowered its forecast for global economic growth in 2022 to 3.2%, with the International Monetary Fund (IMF) following suit for the same reason. According to the IMF, the global economy will grow by 3.6% in 2022 and 2023 as compared to 6.1% last year. From its projections in January, the IMF has lowered its forecast for 2022 by a whopping 0.8 percentage points and for 2023 by 0.2 points.
This has also had an impact on global steel and scrap prices which, since mid-April, have been relinquishing some of the gains of previous weeks. Steel mills have become much more cautious in their demand for ferrous scrap and pig iron given that orders for their products have decreased significantly.
The steel scrap market will have to contend with challenges on several fronts in the second half of 2022:
- Availability of new scrap is likely to remain scarce. Pig iron shortages are affecting not only Europe but also the USA, which is one of the most important importers from the CIS. Added to this is the increasing use of new scrap to save CO2 It is questionable whether countries such as China and India can compensate for the loss here.
- Logistics problems in Europe are unlikely to improve. In addition to workforce shortages, the increase in fuel costs and low water levels on the main inland waterway routes are likely to keep prices high.
- Global economic growth is likely to weaken further in 2022.
- As the world’s trading currency, the US dollar will remain strong owing to the restrictive monetary policy of the US Federal Reserve and will make the purchase of commodities more expensive, which is likely to have a negative impact on general demand for raw materials.
- China wants domestic steel production to stagnate again this year, and the strict implementation of its zero-COVID policy calls into question the economic growth target of 5.5%.
- Turkey, as the most important customer for Europe’s scrap, continues to struggle with galloping inflation while the sharp rise in input costs for its steel mills is endangering competitiveness on the international market.
- There is no end in sight to the conflict in Ukraine and the possibilities are increasing of this expanding to other regions around the Black Sea.
- A big question mark remains over energy security in Europe and there could be painful cuts in the autumn. This would put an even greater strain on the already high input costs of European steel mills and further weaken their competitiveness in relation to Asian producers.

Denis Reuter
TSR Recycling GmbH & Co. KG (DEU),
President of the BIR Ferrous Division
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