European scrap to remain structurally high, outlook bullish

High European scrap prices and strong demand will continue until the end of the year, with competition for high-grade scrap firm and market forecasts bullish.

Prices for high grades will remain strong for the next five years, with some degree of volatility and downward and upward corrections, Casier Recycling’s Alain Eeckman said at last week’s Kallanish Europe Steel Markets virtual conference.

The decarbonisation drive will add more constraint on scrap, which will gain a central role in low-carbon steelmaking. This will contribute to future high values and demand.

“Production of steel, particularly flat steel, went down last year because of Covid-19,” Eeckman said. “We should not forget that most of our domestic mills generate quite a bit of internal scrap usually of a high grade. The other main source is the automotive industry that has been struggling for quite a while even before Covid-19. Now with rampant steel output, there is less supply and huge demand.” The situation is worsened by protectionism which is causing a “self-generating” bubble in steel and scrap prices, he added.

Given the current need for scrap, Eeckman believes “it is a given” that an export ban on European scrap will be implemented. The strongest lobby to push for a ban on high-grade exports will be the flat steel mills.

Since supply of lower qualities is in excess, there is no need to ban exports of the lower grades. There is however a trend among European mills to use more HMS grades. ArcelorMittal is said to be actively looking into that, pushed by the structural shortage of new arisings E8 and E40 grades.

So far, China has been sourcing scrap in Asian countries but rarely in Europe. China is however going to provide a significant flow to international scrap trade. The country is forecast to increase its seaborne scrap imports massively as EAF capacities are being added, said Shanghai Metals Market chief executive Ian Roper.

In June contracts, northern European E8 stood at €450-460/tonne ($536-548) delivered on average. In Italy E8 and E40 are being transacted at €490-505/t delivered, Kallanish notes.

There will be an alignment with the higher Italian prices, “for the simple reason that it is all connected … Northern Italy and the flat steel mills are desperately looking for scrap and sourcing it in Eastern Europe and southern Germany,” Eeckman explained. If southern German scrap flows to Italy, there will be a shortage in Germany and players will need to adapt their prices or start looking elsewhere, he concluded.

Natalia Capra France