Pakistan scrap buyers withdraw as rupee hits record low

Ferrous scrap buyers in Pakistan withdrew from the import market over the past two days after the country's currency plunged to an all-time low against the US dollar.

The rupee depreciated to above 200 to the dollar for the first time ever yesterday and consolidated above that level today, last trading at $1: Rs200.10 as of 17:25 BST (16.25 GMT). The rupee is down by 4pc over the past week, 7.7pc since the beginning of May and 30.7pc over the past year.

Pressure on Pakistan's currency has been driven by an unsupportive external export environment, which has contributed to a severe trade deficit, according to an April statement by the World Bank. State bank foreign exchange reserves fell to $13.5bn by 25 March, with overall reserves at their lowest level since December 2019.

Pakistani steel mills and traders halted new purchases of containerised ferrous scrap as the speed in the decline of the rupee left them unable to gauge new price points or predict how deals would translate to landed costs by the time of delivery.

Market participants said Pakistani steelmakers' scrap inventories are low after several months of reduced purchasing activity following the spike in global seaborne prices in response to the start of the Russia-Ukraine conflict.

Pakistani imported scrap prices have retreated over the past month and a half, in line with the wider seaborne market, with the Argus weekly assessment for containerised shred cfr Pakistan shedding $140/t from a peak of $660/t on 1 April to $515-525 today.

The scale of this decrease would normally have built expectation that the country's steelmakers would now increase import purchases in order to replenish their lower stocks.

But the volatility in the rupee's exchange rates means mills may have to face the tough decision between buying scrap in an unfavourable currency environment or cut production to subsist on current inventory, combined with whatever material they can source domestically until the exchange rate stabilises.

Pakistan is one of the world's largest importers of containerised ferrous scrap. It imported just over 4mn t in 2021, of which 851,000t was sourced from the UK, 709,000t from the UAE and 570,000t from the US.

By Corey Aunger, Georgina McCartney and Ronan Murphy