Scrap exporters make multiple sales to lock in profits

At least seven deep-sea ferrous scrap exporters have made multiple cargo sales to Turkey this month as they seek to take advantage of a wider spread between seaborne and dockside prices following a difficult September.

Three US exporters, three continental European exporters and one Scandinavian exporter have all sold two or three deep-sea cargoes to Turkish mills in November. All seven exporters sold multiple cargoes within a week of their first sale.

Many of the exporters that closed multiple deals do not normally deal in such high volumes or sell such a high number of deep-sea cargoes to Turkey in any given month.

After Turkish mills stocked up on significant amounts of November deep-sea shipments, some deep-sea exporters made attempts at the start of this month to suggest to the market that prices would then stabilise on weaker Turkish demand and bottoming prices for US/European domestic delivered to mill scrap.

As the market started to show signs of possible stabilisation around $260/t cfr Turkey for premium HMS 1/2 80:20 at the end of the first week of November, more and more sellers chose to make multiple deep-sea cargo sales to Turkey in an attempt to achieve high profits on large tonnages for December shipment sales.

This stability marked the point where the spread between dockside and seaborne prices widened sufficiently for exporters who had been hit hard by volatile price movements in September-October to begin recovering losses suffered during that period.

The negative impact on exporters of the sharp drop in the Turkish scrap market throughout September was compounded by the fact that cargoes sold in this period were largely composed of expensive material bought in the summer and in the first half of the month.

Seasonal summer tightness meant that dockside prices in some exporting regions stayed relatively firm even towards the end of August, despite a relative lack of trading in Turkey to support prices.

And even after the Turkish scrap price began to fall sharply in the first half of September — with the Argus HMS 1/2 80:20 cfr Turkey assessment dropping by $23/t on 2-5 September — exporters' dockside prices initially lagged the pace of decrease.

This lag was caused by relative strength in domestic markets compared with the Turkish price, particularly in Europe, where German and UK monthly delivered to mill prices in September fell by a much lower rate than Turkish seaborne prices over the same period.

Consequently, exporters' margins came under heavy pressure from tight spreads between dockside and Turkish import scrap prices in September.

On 10 September, the Argus daily HMS 1/2 80:20 steel scrap assessment stood at $240/t cfr Turkey while the Argus weekly #1 HMS assessment was at $195/gross tonne (gt) delivered to dock, equivalent to a spread of roughly $41.88/t.

Exporters were subsequently able to drive down dockside prices in all regions to move into line with a continued fall in the Turkish market that resulted in the HMS 1/2 80:20 cfr assessment hitting a 2019 low of $221.20/t on 30 September.

But the opportunity for exporters to claw back margin began to emerge in October as the Turkish scrap price rebounded even while domestic prices in the US and Europe continued to fall, allowing exporters to keep dock prices low.

On 8 October, the Argus cfr Turkey steel scrap assessment was $227.80/t, set against a delivered New York dock #1 HMS assessment of $165/gt, equivalent to a spread of $60.16/t. The spread had expanded by $18.28/t in the space of a month.

And this trend continued through to early November, as dockside scrap prices in exporting regions lagged the rate at which the Turkish market continued to rise. On 12 November, the spread between the HMS 1/2 80:20 cfr Turkey and #1 HMS delivered to New York assessments had risen to $68.96/t. Dockside spreads in other exporting regions widened in September-November, albeit not to the same extent as the US.

This widening of spreads created the opportunity for exporters to make sales at much more favourable margins and many subsequently did so, preferring to sell multiple cargoes swiftly to lock in profits.

A lack of certainty regarding Turkish demand in December, combined with the general slowdown of activity in the shortened winter holiday month, meant that exporters were content to sell the bulk of their remaining 2019 tonnage now and balance their trading activity for the fourth quarter.

By Alex Reynolds