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The end of 2023 saw the onset of the Red Sea crisis and, while demand and relative pricing for containerized recycled steel to the Indian Subcontinent and the Far East had held absolute for so long, the resultant freight increases of around US$ 1000 per TEU (US$ 40 per tonne) effectively destroyed demand and viability overnight for containerized recycled steel exports from the UK relative to, for example, the deep-sea Turkish market.

Mills across Bangladesh and Pakistan had already been on the sidelines, battling their own macro-economic crises driven by a lack of foreign currency reserves and significant political uncertainty and instability in both countries, which have been significant barriers to trade throughout the final quarter of 2023 and the opening weeks of 2024.

In the same period, a lot of media attention has centred around the UK steel sector - specifically, moving away from antiquated BOF technology while transitioning to “greener, more sustainable and less carbon-intensive” EAF steelmaking. Emissions from BOFs account for most of the 14% of UK industrial emissions that relate to steel, so there is little argument on logic or need to have a long-term, commercially-viable steel industry in the UK.

The UK produces around 11 million tonnes of recycled steel each year, of which less than 3 million tonnes is consumed domestically, making this country the world’s largest exporter of recycled steel on a per capita basis and the second largest in absolute terms. The next five years will be transformative and the transition from BOF to EAF will require far more of the recycled steel generated in the UK to be melted domestically. I think I can speak for all UK members when I say that there is little fear of this change and that we all support a strong home steel industry.

The current, pitiful levels of UK demand for recycled steel have made, and continue to make, conditions challenging and exports a necessity. Tata has reduced both production and recycled steel usage owing to ageing assets and melt consistency challenges, while also planning - as recently announced - to dead-stop melting entirely by the fourth quarter of 2024 for a prolonged period. Furthermore, Celsa group’s poor downstream demand and wider company restructuring have seen it reduce its scrap requirement significantly, while British Steel and Liberty Steel are also operating at extremely low capacity utilization rates and are therefore not regularly in the market for recycled steel.

Despite the doom and gloom domestically and in containerized markets, January saw increases in Turkish HMS prices which drove dockside prices upwards by £20-30 per tonne. Rising hot metal costs, driven by improved sentiment in China, dragged up competing recycled steel prices, causing a rally in the deep-sea market that had lagged the container market for the preceding two quarters. While the return of the deep-sea market provided a welcome tonic, margins achievable in the UK remain suppressed. 

Looking ahead, there is room for optimism. We are eagerly anticipating the start of Turkey’s mega social housing construction and the reconstruction projects following last year’s tragic earthquake, as these are poised to boost local steel demand. However, until the Treasury and Central Bank of Turkey have successfully replenished government finances - a goal they are vigorously pursuing - these programmes are unlikely to reach their full potential and markets may face a further wait before witnessing a resurgence in Turkish construction that will propel growth in domestic steel production and the underlying demand for recycled steel.

Elsewhere, political stability in India, Pakistan and Bangladesh is likely to improve post-Ramadan and general elections, resulting in better financing lines, optimism and market confidence, and contributing to an anticipated resurgence of containerized recycled steel demand towards the end of the first quarter. 

We hold a fundamentally optimistic outlook on iron ore, anticipating a decrease in volumes from the seaborne market owing to seasonal mine maintenance programmes. Furthermore, we are optimistic about a potential recovery in Chinese construction activity, encouraged by the significant support provided to property developers in 2023. Consequently, resilient iron ore and hot metal production costs are expected to strengthen recycled steel benchmarks throughout the first quarter.

The above notwithstanding, sluggish economic data and forecasts for UK growth, the widely-publicized difficulties facing the UK steel industry and lower generation of recycled steel mean that, while prices look to be fairly well underpinned, scarcity of supply in the UK will likely keep margins tight.

Harry Seale

ATLAS COMMODITIES LTD (GBR), Guest contributor

United Kingdom

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