Brazilian scrap dealers struggle to diversify their sales through exports

The importance of diversifying sales has recently become clear in the Brazilian scrap market, amid the fluctuations in local demand and international prices along with the impact of inflation on recyclers' fixed costs.

But the sector is confronting logistic constraints amid its peculiar export practices regarding containers and limited destinations.

In one trader's view, the domestic market has adequately remunerated scrap, and for many dealers the decision of keeping materials in their home market is a good deal, especially in the Southeast region, but in other locations many recyclers are seeking business abroad in search of better deals.

Another trader said: "We have different realities in Brazil. São Paulo state operates differently from the rest of the country, and this weighs as a decision-making price factor for the mills."

Brazilian domestic scrap prices saw mixed fortunes in the second half of 2021 when local mills applied a price reduction on obsolescent grades, opening space for more exports of material.

At that moment, there was a detachment from HMS and clean steel scraps. While the first faced devaluation, the second remained at higher levels, given the low industrial generation in the period.

The National Institute of Iron and Steel Scrap Companies, or Inesfa, estimated that the demand for ferrous scrap in Brazil exceeded 9 million mt in 2021, 13.1% above 2020's level. No projections for 2022 have been released.

For Inesfa's president, Clineu Alvarenga, "scrap processing companies always give preference to supplying the Brazilian market, exporting only excess volumes when there is low interest from local steelmakers."

Ferrous scrap exports fall in 2021

Brazilian customs data showed that ferrous scrap exports in 2021 dropped 30.3% year on year to 509,355 mt as a result of rising local consumption, but also because of logistics constraints.

The main destinations for Brazilian scrap were Bangladesh (211,983 mt), India (144,776 mt) and Pakistan (86,131 mt), at average FOB prices of $386.40/mt, $455.52/mt and $360.88/mt, respectively. The three countries remained the major destinations for the past five years, while nations such as United Arab Emirates, South Africa and Taiwan have emerged as strong buyers.

In a view of a source close to the sector, the movement of containers is starting to brighten, with falling freight rates and better perspectives for March.

But he stressed that some recyclers still lack a medium- to long-term strategy and the mentality to maintain constant contacts and contracts, even if small, with the overseas market.

"The international market has changed a lot," he added. "We had changes of shipowners in almost all markets. it is important that there is a constant presence in the external scenario, especially given the restricted availability of containers that has improved, but not yet as we saw before."

A third trader said he exported 12,000 mt of ferrous scrap in January and his idea was to exceed that number in February, but recent foreign exchange fluctuations hampered his strategy.

"Our predictability for business is at most a month ahead now," he said. "Things are changing very fast. There are many variables to evaluate. More than ever, we will look for the best deals."

Brazilian ferrous exports in January totaled 38,203 mt, a jump of 101% from the year-ago period. These volumes were shipped at an average FOB price of $489.67/mt.

Gaps in global value chain

The issue of global logistical chaos caused by the coronavirus pandemic will likely extend a little longer, according to Fernando Marques, professor of international business at Fundação Escola de Comércio Álvares Penteado, or FECAP, in São Paulo.

Marques said the pandemic reinforced gaps in the global value chain, with shipowners in the segment giving priority to more dynamic regions that have more trade strength.

For this reason, some problems may not be so transitory, as it also brings issues of market concentration related to logistic routes.

For less developed economies, as in the case of Brazil, there will be improvement only in the long term. That is why it is important for scrap dealers to maintain relationships abroad.

"The poorest countries are already losing competitiveness with such high logistical costs," Marques said. "Therefore, the export agenda will be restricted to large conglomerates with long-term financial strength, until there is a normalization of the availability of containers, followed by a return to normality for developing markets and smaller companies."

On imports, 244,695 mt of ferrous scrap entered the country in 2021, 169% more than the previous year's 90,919 mt.

Most came from the US (101,568 mt), Canada (81,409 mt) and Bolivia (19,940 mt). Average FOB sales prices were $411.35/mt, $324.91/mt and $320.70/mt.

Alvarenga, Inesfa's president, said the numbers reflected the pressure on steelmakers to guarantee low prices in the local market in the face of some months of intense exports from dealers in 2021. He stressed that had nothing to do with the lower availability of products in the domestic market.