Deepsea Turkish import scrap prices rose to their highest level since September 2014, amid strong finished steel orderbooks into Q1 2021.
The index has risen over $100/mt in just over two months, up from $282.25/mt CFR on Oct. 8, with both mill and recycler sources expecting $400/mt CFR for premium HMS 1/2 (80:20) to be possible in the near-term.
Strong finished steel demand, mill margins
Turkish mills have experienced strong finished demand, especially for higher value products such as wire rod and hot-rolled coil, with some mill orderbooks stretching into March shipment dates. Rebar demand has also been firm, though not as strong as other products, with some mills well-booked into late February.
“I have not seen lead times as long as three months in the Turkish long product market for a long time,” one Turkish trader said.
The demand from large-volume rebar bookings into Hong Kong and Singapore in October and early November were replaced by improved Turkish domestic demand and interest from Latin American buyers into December, as the rising finished steel prices reduced Turkish competitiveness into Southeast Asia.
Turkish mills were heard to have booked deepsea bulk scrap cargoes as far as two months ahead, with some mills beginning to book material for February 2021 arrival, even in late November.
The scrap price rally kicked off in early November as mills looked to secure scrap cargoes ahead of the usual slowdown in scrap collection in key exporting regions during the winter months. Concerns over a second wave of coronavirus lockdowns also prompted strong mill buying.
Positive news regarding the efficacy of multiple vaccine candidates against the coronavirus and certainty over the US presidential election also boosted market sentiment in November for early 2021.
Despite the sharp hike in scrap prices, Turkish mills have enjoyed healthy margins over the past month. The Turkish longs melting margin –the spread between Turkish export rebar and import scrap – was assessed at $170/mt Dec. 9, unchanged on day.
The melting margin has remained firmly above mills’ benchmark level of $160/mt since Oct. 30 and reached an eight-month high of $175/mt on Dec. 4. This has prompted expectations of higher workable levels for premium HMS 1/2 (80:20), with $390/mt CFR considered workable in the near-term.
Scrap prices into Turkey also remain competitive against semi-finished steel alternatives for Turkish mills, such as CIS-origin billet, which was offered as high as $535-$540/mt CFR Turkey on Dec. 9.
US recyclers heard to hold back from Turkish market
During the sharp rally, no confirmed US-origin cargos were heard to be booked since Nov. 11, as US recyclers looked to hold back ahead of a sharp rise in domestic scrap prices.
This was realized in the US December scrap settlements, with Platts US shredded scrap index calculated at $371.75/lt delivered Midwest Dec. 8, up from $288.50/lt one month earlier on Nov. 13. Scrap price hikes were supported by a more-than $400/st rise in US hot-rolled coil prices since August, with Platts TSI US hot-rolled coil index at $856.50/st EXW Indiana Dec. 8.
Market sources noted that a number of confidential US-origin cargoes were likely to have been booked by Turkish mills during the past month, however.
The relative absence of US material into Turkey has also tightened shredded scrap supply. This has led some Turkish mills to pay elevated premiums of $10-$14/mt for shredded scrap above the HMS 1/2 (80:20) price for recent deepsea cargoes from UK, Benelux and Baltic suppliers, rather than the historic $5/mt premium.
Rising collection costs
The sharp increase in CFR Turkey prices has also caused collection concerns for scrap exporters, as sub-suppliers push for higher prices.
Benelux exporters were heard to pay as high as Eur265-270/mt for HMS material delivered to the dock on Dec. 9, up from Eur210-215/mt delivered one month earlier, with some sell-side sources expecting prices to rise further in the near-term.
Sources noted that cargoes that are currently being loaded for December shipment were sold $100/mt below today’s CFR Turkey price, with recyclers needing to carefully manage their collection costs as sub-suppliers’ expectations rise sharply in line with the CFR Turkey price.
“There is no fully accumulated and ready cargo available anywhere – everybody is gambling from now on, this is very clear,” a Turkish agent source said, noting that some scrap recyclers were agreeing bulk cargo sales without having fully collected the material.
The near-term contango on the scrap forward curve on the London Metal Exchange strengthened further on week, driving futures traders’ expectations for near-term physical prices to breach the $400/mt CFR level, last seen in January 2014.
The LME December scrap futures contract increased by $17/mt over the week to $396/mt Dec. 9, while the January contract was assessed by Platts at $417/mt Dec. 9, up a massive $37.50/m on week.
Market sources also expect the reintroduction in early 2021 of ferrous scrap imports into China, the world’s largest steelmaking nation, to add further upward pressure on CFR Turkey prices.
