Iron ore vs scrap imparity hit mini-mills in Turkey

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Post on 07-Aug-2015

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  1. 1. Turkish mills should undercut ferrous scrap prices by raising billets purchases 03 June, 2015 Andrey Pupchenko, Deputy Managing Director, Metal Expert
  2. 2. 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
  3. 3. Metal Expert Turkish mini-mills keep capacity utilization at rather high level, thus overstocking the rebar market Rebar capacity utilization in Turkey
  4. 4. 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
  5. 5. Turkish mini-mills have positive and sustainable margin in local market only Metal Expert
  6. 6. 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
  7. 7. Metal Expert UAE billets market Turkish mills lose competiveness 0 50 100 150 200 250 0 100 200 300 400 500 600 Jan.13 Mar.13 May.13 Jul.13 Sep.13 Nov.13 Jan.14 Mar.14 May.14 Jul.14 Sep.14 Nov.14 Jan.15 Mar.15 May.15 $/t Turkish billet (EAF steel/scrap) Chinese billet (BOF steel) The average difference in costs doubled
  8. 8. 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 $/t FOB Australia 40 45 50 55 60 65 70 75 80 85 211 216 221 226 231 236 241 246 251 Ironoreconcentrate (61.5%),China,c&ffrom Australia,$/t Ferrous scrap,Turkey,c&ffrom USA,$/t
  9. 9. 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 NorthAmerica Others
  10. 10. 340 390 440 490 540 590 Jan.13 Feb.13 Mar.13 Apr.13 May.13 Jun.13 Jul.13 Aug.13 Sep.13 Oct.13 Nov.13 Dec.13 Jan.14 Feb.14 Mar.14 Apr.14 May.14 Jun.14 Jul.14 Aug.14 Sep.14 Oct.14 Nov.14 Dec.14 Jan.15 Feb.15 Mar.15 Apr.15 May.15 $/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
  11. 11. Turkey's billet import dynamics Metal Expert 0 200 400 600 800 1000 1200 1400 Q114 Q214 Q314 Q414 Q115 '000t Plus 470'000 t CIS-origin billets expanded its presence in the Turkish market
  12. 12. 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
  13. 13. Metal Expert 315 315 249 258 263 286 270 255 240 230 240 250 260 270 280 290 300 310 320 Dec.14 Jan.15 Feb.15 Mar.15 Apr.15 May.15 Jun.15 Jul.15 Aug.15 $/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)
  14. 14. Questions? Contact us: Andrey Pupchenko Metal Expert +38 (056) 370 12 07 (ext. 160) a.pupchenko@metalexpert-group.com
  15. 15. 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 subscriptions@metalexpert-group.com

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