Turkey ferrous: Price flat, freight rise influences

The Turkish scrap import price was flat on Monday as previously strong sales appetite was curbed by a rapid rise in US-Turkey freight rates and a strengthening of the euro against the dollar in the second half of last week.

Freight rates for ferrous scrap cargoes from the US to Turkey spiked unexpectedly in the second half of last week on surging demand for bulk vessels in northern Brazil, after two US scrap exporters closed cargo sales in the first half of the week.

The Argus weekly assessment for Supramax freight rates for ferrous scrap cargoes from New York to Turkey jumped by $10/t on 30 July to $45-46/t. Extremely high demand from multiple commodities drew vessels towards northern Brazil, with alumina cited as a particularly intense driver.

Market expectation grew over the weekend that US exporters will not look to sell September shipment cargoes early to Turkey this week, during the US domestic August delivery settlement period.

A strengthening of the euro against the dollar from 29 July was not timely for those European scrap exporters that sold on 29-30 July to Turkey and the firm euro on Monday dampened any extra sales appetite from that region this week.

Most of the remaining August shipment scrap availability to Turkey was flushed out last week, and the focus for most of the buyers and sellers is now September shipment trading. More prompt shipment cargoes traded with Turkey last week than in any other week so far in 2021.

The September shipment trading cycle may not kick off until next week, and the timing of that cycle may depend on how the Chinese steel market develops this week after significant falls in physical and futures steel pricing on Monday. China's Purchasing Manager Index dropped to 50.3 in July from 51.3 in June as a result of slower manufacturing on the month – an increase in COVID cases and power shortages weighed on output and new orders.

But the physical steel price decrease on Monday was half that of the futures drop, and Chinese physical rebar demand already appeared to rebound this afternoon. Chinese physical domestic rebar prices are still around $65/t higher than at the beginning of July.

Chinese export rebar offers are highly unlikely to come under heavy pressure given that there is still a strong possibility that an export tax could be implemented in the near term. The falls in China's physical and futures steel prices on Monday were understood to be influenced by market expectation that those export steel taxes would be implemented on 1 August.

High freight rates are also an issue for Turkish steel exporters, and demand for Turkish rebar has also decreased based on the fall in Turkish scrap import prices. But even with freight to southeast Asia at $75/t today, Turkish mills could still match the $740/t cfr Singapore theoretical weight basis price at which UAE-origin rebar traded last week and still make a healthy profit.

Despite this, Turkish mills do not want to sell at those fob levels because they have strong price expectations for September sales.

Turkish mills were able to drop their official domestic rebar offers to around $710/t ex-works excluding VAT on Monday after the fall in scrap import prices. Stockists' bids are around $690/t ex-works but demand cannot build to a large extent until the lira begins to at least stabilise against the US dollar following a new burst of volatility. The strength of the lira and accompanying decrease in lira-denominated prices are favourable for stockists moving into mid-August when they currently estimate their demand will increase.

The likelihood of low rebar activity this week based on China's steel price correction and an unstable lira-USD rate, combined with the scrap-supply side's firm freight rates and weak US dollar, will possibly mean very few deep-sea scrap cargoes are traded this week. Chinese steel price development on Tuesday-Friday this week will impact market sentiment significantly as a result.

The Argus daily HMS 1/2 80:20 (short-sea) cif Turkey steel scrap assessment was flat at $440/t today.