Turkish scrap prices in position to fall further

Turkish ferrous scrap prices fell sharply yesterday on a Russian sale to an Iskenderun mill and a number of indications show that prices could move down further in the near term.

Aggressive Russian sales could occur again

Continental European scrap exporters that face less flexible dockside prices than US and Russian exporters are concerned a Russian seller will make a swift second follow-up sale at a lower price than the $251/t at which it sold yesterday.

The Russian seller sold 25,000t of HMS 1/2 80:20 at $251/t and 5,000t of bonus at $261/t cfr Iskenderun for March shipment on 4 February, $10-11/t lower than US sales done the previous day.

Russian exporters today received bids at $240-245/t cfr Turkey for premium HMS 1/2 80:20.

There is recent precedent for this supplier making consecutively lower sales in quick succession that trigger a wider fall in the Turkish scrap price.

On 4 September 2019, amid weak Turkish demand, the Russian exporter sold 25,000t of HMS 1/2 80:20 at $247/t cfr Iskenderun, dropping the market price by $9/t at that time, to the same buyer that it sold to yesterday.

Five days later on 9 September, the seller sold 25,000t of HMS 1/2 80:20 at $240/t cfr Izmir, $7/t down from its prior deal.

The exporter followed the strategy of dropping the Turkish scrap price via two sales in September in order to put pressure on its local dockside purchasing prices. Market participants said that the new sale yesterday indicates similar confidence that the supplier can exert similar significant downward pressure on St Petersburg dockside prices. There is little current counter-influence from other exporters in the region as no other Russian export sales from St Petersburg have been heard this year.

St Petersburg dockside prices have fallen in the past three weeks on the weakening of the Turkish import market. The Argus weekly A3 delivered to St Petersburg assessment dropped by around $37/t from 14 January to a dollar-equivalent $195.59-208.11/t on 4 February.

When the Argus cfr Turkey HMS 1/2 80:20 assessment was last in the $240s/t, in mid-October, the mid-point of the St Petersburg A3 dockside price range was $174.58/t, which is likely to be the level that the Russian seller of the $251/t cfr cargo will now target.

Weakening US factors give exporters flexibility

US ferrous scrap exporters look to have room to drop dockside prices to meet lower Turkish bids.

Faced with the possibility of weaker export sales, US exporters dropped purchase prices sharply over the last week, with some notifying sub-suppliers of additional drops as high as $10/gt later this week.

Cut grade prices in New York and Philadelphia dropped an average of $15/gt from 28 January to 4 February, with #1 HMS prices down in both regions to $190-210/gt delivered yard.

US dockside purchasing prices for #1 HMS fell to $170/gt in November, and the global markets are experiencing much more weakness now than they did at that time, which indicates that this level could be breached later this quarter.

US winter weather has also been mild this year, and east coast scrap markets have not yet been subject to the heavy snowstorms that have disrupted supply in recent years.

Coronavirus dents global steel demand

Turkish mills have been telling deep-sea scrap suppliers that they are not able to sell steel overseas or domestically as a result of the bearish sentiment generated by the ongoing outbreak of the coronavirus in China.

Buyers are mostly out of the market because of the fall in scrap prices and global steel demand looks likely to be limited next week, as it appears increasingly unlikely that the virus outbreak will be brought under control before Chinese steel mills are due to fully return to market on 9-10 February.

Many Baltic and European scrap exporters are expected to seek sales to Turkey for March shipment next week.

Possible price upside later in February

Despite the expectation that the scrap import price will fall further than today's levels, there is also a possibility that a rebound could occur later this month based on anticipation that deep-sea scrap availability for March/April shipment will not be as strong as it was for January/February.

Deep-sea scrap exporters have reduced their purchase rates at ports in the second half of January in reaction to high stocks and falling seaborne prices. Exporters are not clear what level seaborne prices can fall to, meaning there is no need to take risks in buying large tonnages during this period.

This could lead to a lack of deep-sea offers in the market for March/April shipment, and create an elastic effect on scrap prices, similar to the rebound seen in October 2019. Turkish mills were actively stocking during that month, so will need to display similar demand for a price recovery of the scale that occurred in the fourth quarter of 2019, when the entirety of the near-$80/t decrease in the third quarter was regained by the end of the year.

By Alex Reynolds