Global Scrap Market: U.S. Strengthens Position

This is an analysis that we perform quarterly. We believe that to improve our understanding of the gyrations of the domestic scrap market we should be aware of where the U.S. stands as a global player. Some nations are slow to report, which results in our analysis being a quarter in arrears, but we believe it gives a valuable perspective of global trends and is the foundation of where we are today. All tonnages in this report are metric.

In this analysis of global scrap trade, we have excluded movements within the EU from the global total. Figures 1 and 2 show the total tonnage of global trade since Q1 2000 and the volume of the top five suppliers. These five are the U.S., the EU, the UK, Japan and Russia and they accounted for 65.8 percent of the total in Q3 2018. Figure 2 is the same as Figure 1 with the total removed. Total trade in scrap globally has been increasing since Q1 2016 and the U.S. export tonnage has increased disproportionally in the same time frame.

Figure 3 shows the global market share of the top five exporters. The U.S. continues to be in first place with an increasing share.

Figure 4 shows the negative correlation of 72.1 percent between the Broad Index value of the U.S. dollar and the U.S. share of global trade. This is a causal relationship that has broken down in 2018. There is also a correlation between the U.S. global share and the U.S. domestic scrap price. The result is shown in Figure 5 with a correlation of 64.5 percent. The fact that our export share increases as our domestic price increases might seem backwards at first glance. However, scrap is a global commodity and the domestic price is strongly influenced by export volume.

Figure 6 shows the tonnage received by the four major importing nations. Turkey is by far the largest global scrap buyer with a tonnage more than the other three combined. In Q3 2018, Turkey took in 25.3 percent of the global total.

Turkey’s import tonnage declined in 2015 and bounced back strongly in Q3 2017 to an all-time high of 5.9 million tons. In each of the three quarters through Q3 2018, Turkish imports have declined. The EU has increasingly strengthened their position as a supplier to Turkey since mid-2015 and in the latest data, the U.S regained second place by overtaking Russia (Figure 7).

The big mystery in the global scrap trade picture is what is going on in China. In the third quarter of 2017, China became a net scrap exporter, according to data published by their trade administration. In our global scrap trade analysis for Q3 2017 we stated: “By the end of this decade, we expect a huge disruption of the global scrap market as China’s scrap collection industry catches up with the rate of scrap generation. About 93 percent of China’s steel is currently manufactured in basic oxygen furnaces; therefore, until they evolve an appropriate mix of BOF/EAF capacity, scrap will be exported in huge volumes.” When data was released for Q4 2017 and then for Q1 2018, we were surprised to see that our conclusion seemed to be premature because China’s reported scrap exports declined by 23 percent and then by another 80 percent. We now have data for Q2 and Q3 2018 when China’s reported scrap exports were zero (Figure 8). We understand from one of our subscribers who has feet on the ground in China that a few months ago almost all scrap exporters were fined or jailed for evading taxes on the value of the material. There was no sign of this industry coming back to life through Q3 2018.

SMU Comment: According to the OECD Steel Committee report on global steel capacity and investments published in September, almost all the new capacity under construction or starting up in China is based on the BOF process. If so, the situation of scrap generation and scrap consumption must be becoming untenable. We still believe that sooner rather than later this volume must appear in the global market with negative consequences for scrap prices worldwide.