Russian billet pressure on scrap overstated

Low-priced exports of Russian steel billet have been widely cited as a major contributor to the ongoing downward pressure on ferrous scrap and steel rebar prices, particularly in Turkey, but the full scope of this pressure appears to be highly limited.

Russian billet was first heard offered on export at comparatively lower prices than Turkish billet prices in the fourth week of March, four weeks after Russian military forces moved into Ukraine. Only some of Russian suppliers' overseas customers are willing to do business due to the risk of sanctions or banks not willing to finance trade.

The volume of an average Russian billet cargo to Turkey is about 9,000t. No more than 25 Russian billet cargoes have been sold to Turkey or any of its surrounding competitors, such as Egypt, in the past six to seven weeks since Russian suppliers started to offer at aggressive prices.

This is less trading volume than estimates circulated in the market that five Russian billet cargoes are being sold to Turkey every week. And it means that no more than 225,000t of Russian billet has been purchased by Turkish importers at prices significantly lower than the wider billet market level.

That volume is not sufficient to meaningfully replace the amount of scrap Turkish steelmakers need to support the production rates at their electric arc furnaces, which have seen no cuts to output despite the very weak finished product demand they have received in the past six to seven weeks.

Appetite from many Turkish steelmakers to buy Russian billet is also not as strong as the market suggests because the chemical properties of Russian billet do not allow for the production of the rebar and wire rod grades that are imported by the EU. The EU has become an even larger rebar and wire rod customer for Turkey since it placed sanctions on Russia.

Fundamentally, global scrap and steel prices have not been pushed down by a few hundred thousand tonnes of Russian billet. The main driver for the significant fall in global steel prices is a combination of other factors.

Global overstocking by traders in the aftermath of Russia moving into Ukraine did not match up with the relative weakness of end-user demand. That led to some demand destruction which, combined with the wider impact of the Covid-19 lockdowns in China and the strengthening of the dollar, dampened purchasing appetite across the entire metals space.

The main downward pressure on the Turkish scrap market today aside from the weak global macro-economic situation is high stock levels held by deep-sea scrap exporters after too much material was collected at the top of the market, and the subsequent decline in Turkish scrap purchasing activity.

By Alex Reynolds