UK ferrous scrap sales to south Asia surge

UK ferrous scrap exports to south Asia increased sharply in the second and third quarters of this year, offsetting a decline in sales to Turkey as suppliers moved to diversify their overseas markets.

Ferrous scrap exports from the UK to Turkey in April-September totalled 1.28mn t, down by a quarter from the same period in 2017, according to UK trade data (see table). Exports to south Asia rose by a quarter over the same timeframe to 1.18mn t.

Turkey received 28.45pc of all UK exports over the second and third quarters, down from 38.67pc in 2017. Shipments to south Asia accounted for around 26pc of UK exports in April-September, up from 20pc a year earlier.

UK suppliers shipped a combined 195,000t of ferrous scrap to India, Pakistan and Bangladesh in September, a 118pc increase from September 2017.

Turkey remained the UK's largest export market for ferrous scrap, but total shipments in September fell by 30pc from a year earlier to 219,000t.

The monthly movement reflects a wider rebalancing of UK export activity since April, in which the largest shift has been a reduction in bulk sales to Turkey and a rise in containerised shipments to south Asia.

Pakistan and Bangladesh were strong growth markets for UK scrap exports throughout 2017 and early 2018, but sales to India fell during that period. That weakness has now reversed, with UK ferrous scrap exports to India spiking by 277pc in September from a year earlier to 83,000t, making it the second-largest UK overseas market during that month.

India's attractiveness to UK exporters waned after late 2016 following several financial reform measures that made it harder for foreign firms to sell to the country. This caused UK containerised ferrous scrap supply to be redirected towards the strengthening neighbouring markets of Bangladesh and Pakistan.

But the recent resurgence in sales to India has not come at the expense of growth in other south Asian markets. Exports to Bangladesh increased by 92pc on the year to 47,000t in September, while exports to Pakistan rose by 52pc to 66,000t.

Lira crisis intensifies need to reduce Turkey exposure

Multiple factors have driven the Turkey-south Asia shift. The first is the onset of the lira crisis in Turkey, which both weakened the Turkish domestic market's steel demand and increased difficulty for exporters and steelmakers to obtain letters of credit for scrap deals.

By the first quarter of 2018, UK scrap exporters would have arguably been over-exposed to the Turkish import market even if Turkey's economic and political outlook was entirely stable. Turkey accounted for 42pc of all UK ferrous scrap exports in January-March, up from 35pc for the whole of 2017.

And as the weakening of the Turkish lira against the dollar deteriorated from a qualified concern in April to a full-blown currency crisis by August, UK exporters' urgency to reduce exposure to such a volatile market deepened.

Strong south Asia prices drive exporter appetite

Another driver of the shift away from Turkey is the comparatively more attractive prices at which UK suppliers have been able to sell to the south Asian markets in recent months.

The average price of the Argus weekly assessment for shredded scrap cfr Nava Sheva in India was $358.75/t in September. Market participants estimated the average freight rate for containerised scrap travelling from the UK to India at approximately $40/t, netting back to a fob price of $318.75/t for a UK supplier.

The average of the Argus daily cfr Turkey assessment for shredded scrap in September was $325.53/t. Argus estimated the average UK-Turkey Supramax freight rate for the month at $20/t, which nets back to a fob price of $305.53/t — $13.22/t lower than the equivalent fob price for a cargo sale to India.

Average fob-equivalent shred prices to Bangladesh and Pakistan carried similar premiums to what was achievable through bulk sales to Turkey during September.

Attractive pricing encouraged UK scrap collectors and smaller exporters to direct increased supply to the south Asian container market from April-September, rather than sell to large exporters' docks to fill bulk cargoes.

Simultaneously, large exporters moved to increase their own containerised sales, while also boosting efforts to sell bulk cargoes to south Asia and other alternative overseas markets in a bid to diversify sales away from Turkey.

South Asian scrap prices look unlikely to become less attractive compared with Turkey in the near term. Containerised shred prices fell throughout November on weaker demand, but remained stronger relative to the Turkish bulk market. The Argus weekly cfr Pakistan containerised shred assessment fell by $15/t from 2 November to $342.50/t on 30 November, while the daily cfr Turkey shred assessment dropped by $25.70/t to $317.50/t over the same period.

Major growth in Egypt and southeast Asia

Egypt and southeast Asia were the other main alternative growth markets for UK exporters during the second and third quarters this year. Egypt received 511,000t of UK scrap from April-September, a 35pc increase on the year. The country is the most natural geographic alternative to Turkey for large exporters' bulk shipments, and UK suppliers have built a strong position in the market.

Indonesia emerged as the fastest-growing market for UK scrap exports, with shipments across the second and third quarters totalling 171,000t, up from just 9,000t during the same period in 2017. UK exports to Vietnam rose from virtually nothing to 60,000t in April-June, while exports to Malaysia rose from almost zero to 22,000t.

As with south Asia, these southeast Asian markets have been initially targeted primarily for container sales from the UK, but as the trade route strengthens large exporters will increasingly seek opportunities to sell bulk shipments.