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India ferrous scrap prices comparatively weak to iron ore, as India scrap futures launch

Highlights

India scrap demand recovers as prices rise in June

India import shredded scrap prices compared with 58%-Fe iron ore fines netback India

LME futures settle on Platts TSI Shredded Scrap CFR Nhava Sheva

Global ferrous scrap prices, including in India, remain comparatively weak to iron ore, as the London Metal Exchange launches India scrap futures, allowing increased risk management with iron ore, scrap, coking coal and steel futures available through multiple exchanges.

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Scrap to iron ore ratios have remained weak, following sustained high iron ore demand in China throughout the coronavirus pandemic and record high prices in May.

While scrap import demand in India has recovered from last year, prices of Platts TSI Shredded Scrap CFR Nhava Sheva and 58% Fe iron ore fines see ratios remaining close to the all-time low in October 2020 of 1.82 scrap to iron ore, according to S&P Global Platts analysis July 19.

The ratio moved higher alongside a recovery in scrap prices since the fourth quarter and averaged at 2.05 scrap to iron ore in June. Platts TSI Shredded Scrap CFR Nhava Sheva averaged $517.50/mt in June, and moved up to $530/mt CFR July 16.

The ratio last peaked in February 2020, at 2.9 scrap to iron ore. The ratio uses 58% Fe fines China CFR prices netback to West India, and scrap and iron ore is adjusted to a 100%-Fe basis.

Major scrap importer India relies more on domestic iron ore resources, which help the nation to minimize iron ore imports. India competes for scrap imports with regional buyers such as Pakistan, buying from the Persian Gulf, the US and other markets.

Platts assessment is based on containerized shredded ferrous scrap at the port of Nhava Sheva, near Mumbai, complying with ISRI 211 classification or equivalent, specifying homogeneous and magnetically separated iron and steel scrap originating from automobiles, No.1 and No.2 steel, and miscellaneous baling and sheet scrap, with an average density of 70 lb/square foot.

Shredded and HMS scrap prices in Turkey, India and the US have tracked long steel and billet prices, which have been weaker than flat steel prices, as collection rates and industrial activity improved after the initial pandemic hit global markets in early 2020.

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The comparative low prices for scrap to iron ore -- at high outright prices for both -- compares to a six-to-eight price multiple for shredded scrap CFR Nhava Sheva over 58%-Fe iron ore fines during 2017, when iron ore was depressed.

While Turkey typically imports deep sea scrap cargoes, India's scrap prices have become a reference, along with those traded in China, Taiwan, South Korea and Japan. The LME's Steel Scrap CFR India cash-settled futures contract, which started trading July 17, settles on Platts TSI Shredded Scrap CFR Nhava Sheva, and is traded on 10 mt lots.

India steel volumes

India was the second-largest steel producer in 2020, after China. India produced 100.3 million mt of crude steel, a tenth of China's 1.06 billion mt, and India turned into a net steel exporter after consumption fell during the pandemic.

Over half of India's steel is from the electric arc furnace and induction furnaces route, with 45.5% via the basic oxygen furnace route in 2020, according to World Steel Association data. Flat steel in India is typically produced by blast furnaces using BOFs, while some investments have gone into scrap-fed EAF flat mills.

India produced 33.6 million mt of direct reduced iron (DRI) and sponge iron in 2020, using thermal coal and natural gas, relying on ferrous scrap for the balance.

India's iron ore demand has risen with higher steel prices and recovery since the fourth quarter. Iron ore exports were affected in the second quarter as Indian ports declared force majeure and slowed exports, while China implemented measures slowing receivals. China's iron ore imports from India in May dropped 2.7 million mt month on month to 3.6 million mt.

Demand for low-grade fines has started to increase from a low level as steel prices and margins weakened in June and supply from Brazil increased, which may aid blending. Relative prices of 58%-Fe fines to benchmark 62%-Fe TSI IODEX fines weakened at higher iron ore prices.