The global scrap market may shrink this year

The ratio between prices for iron ore in China and scrap in Turkey is often used in analysis of scrap prices. In May, this ratio was at its minimum over the past few years. Scrap is quite cheap in relation to the iron ore price and, consequently, cost of pig iron.

Theoretically, such situation cannot last for long. Consumption of scrap is expected to increase, as it is advantageous to use it in electric arc and BOF steelmaking. Therefore, prices for scrap should level out. Yet in fact, the situation is different.

Ferrous scrap consumption is actually growing around the globe. This is mainly due to China where electric arc steel production volumes doubled in 2018 amid toughened environmental requirements.

Moreover, China is self-sufficient in terms of scrap volumes and cuts its imports in connection with the approval of regulations on waste treatment that imposed restrictions on the terms of scrap imports. In other words, China has a restricting impact on the international trade in scrap.

For this reason, the volume of international trade (i.e. the global market volume) remains at the same level globally, and may reduce this year.

The margin of electric-arc steelmaking companies is at the minimum. This is evidenced by the scrap to square billet price ratio.

For more details see infographics of GMK Center.