Europe supply issues could support Turkey scrap to Sep

Turkish ferrous scrap import prices may rise and remain supported through to September based on heavy disruption to European logistics and its effect on scrap supply to Turkey.

Northwest Europe is the largest overall ferrous scrap supplier to Turkey. Turkey has imported a combined 2.428mn t from the Netherlands, Germany and Belgium in the first six months of 2022, according to customs data.

Exporters in all three countries have been finding it very difficult to commit to existing cargo sales for August shipment and to make new sales for September shipment because their logistics have been severely disrupted by historic hot weather.

The European scrap supply system is highly dependent on inland river transportation. A lack of rainfall in central Europe through July and August means the River Rhine is experiencing historic low water levels that are requiring suppliers to cut the volumes of scrap they can load on barges.

Continental European scrap exporters have only been able to load a half or a third of the volume on a barge on the Rhine since mid-July compared with the typical 1,000-2,000t they were able to load in the early summer period, according to an Argus survey this week.

Barge costs from the Frankfurt area into Belgium and the Netherlands are also five times the price mid-summer than they were in early summer. Scrap transport by barge from very northern parts of Germany is less difficult because the smaller rivers allow for damming, but these smaller rivers transport far less volume into the large export terminals in northwest Europe than the Rhine does.

In addition to lower per-barge volumes, scrap exporters are finding it difficult to actually source barges because of strong competing demand from the coal and wheat industries. Limited gas supply in Europe means German power suppliers are increasing coal-fired power plants, which require delivery of large volumes of thermal coal via barge.

Continental European exporters have also experienced the typical summer slowdown in scrap arisings because sub-suppliers tend to take time away from collecting new material as they take holiday. Some exporters told Argus that scrap arisings were down 50pc in July compared with June. Dutch exporters increased HMS 1/2 dockside purchasing prices to €320/t ($330/t) early this week.

The combination of lower supply and transportation disruption in Europe looks likely to continue through the rest of August. The two-week weather forecast in west Germany shows that only one hour of rainfall will occur — on Monday next week — which signals that water levels and barge transportation will remain an issue for the foreseeable future.

Limited supply coincides with renewed Turkish scrap demand

The longer the European scrap supply issue persists, the longer Turkish scrap import prices could remain at elevated levels.

When Turkish scrap import prices rose in the previous round from 23 June to 7 July, they then largely maintained levels above $400/t cfr for premium HMS 1/2 80:20 until 18 July before falling sharply to $350/t by 27 July. The drop was driven by weaker demand for Turkish rebar and US scrap exporters' appetite to sell and take advantage of lower dockside prices relative to other global competitors.

But Turkish steel producers were only able to buy around five deep-sea cargoes in the second half of July — from any origin — and bought almost nothing at bottom market prices at the end of July.

A renewed round of rebar restocking in Turkey rebuilt scrap demand from the start of August, but it was the lack of scrap supply in the market that really maintained upward pressure on prices and significantly cut Turkish mills' scrap-rebar margins.

Turkish scrap import prices have been increasing in the current round since 2 August. Based on the 27-day period of rising and elevated prices from late June to mid-July, and the greater disruption to overall scrap supply now compared with early July, Turkish scrap import prices could remain elevated through to September.

Turkish steelmakers have to cover domestic rebar sales done from 28 July to 8 August, which means it will be difficult to apply any counter pressure to scrap prices in the short term considering the lack of available supply options.

But if Turkish demand turns extremely limited towards the end of August once they have covered their domestic rebar sales and rebar demand for subsequent shipment remains low, renewed pressure on scrap prices could emerge. Deep-sea scrap exporters, either in or outside Europe, could bet on an improvement in European logistics and supply in September, and in turn increase offer availability to Turkey.

Short-sea scrap offers are becoming more visible to Turkish mills today as western Black Sea HMS 1/2 80:20 prices rise into the mid-to-high $380s/t cif, but Turkish mills' ability to actually put downward pressure on import prices in the middle of August will be very difficult based on the lack of supply from northern Europe.

By Alex Reynolds