Scrap supply tightening, Red Sea disruption ‘decisive’

Largest scrap suppliers the EU and US will see exports halve in the next 5-6 years due to increased domestic demand as steelmakers decarbonise. This means current scrap importers will need to find alternative sources or use more ore-based metallics, according to McKinsey & Company associate partner Alexander van de Voorde.

Scrap generation in the mature supplier economies will grow only slowly and barely for prime scrap. This will see regulators holding scrap closer to demand centres, which will lead to reduced interregional trade flows, van de Voorde said at Kallanish Europe Steel Markets 2024 in Milan last week.

Decarbonisation will also lead to a larger oversupply of lower-grade iron ore, especially on the blast furnace side, but will cause a large deficit of higher grades, such as 67% Fe. The premium between those grades will be stretched.

Coking coal, meanwhile, “will remain an expensive commodity that people will fight for,” van de Voorde noted. Over the next 15 years, various mines will close, while new development in recent years is not sufficient to keep up with seaborne coal demand. Prices will not explode but will remain elevated, he added.

Derek Langston, Braemar Shipping

Derek Langston, global head of dry research at Braemar Shipping, meanwhile pointed out that freight rates in 2024 are elevated versus a year earlier. Bunker ships started avoiding the Panama Canal due to low water levels and then, months later, Houthi attacks started diverting shipping away from the Red Sea. The fact this happened simultaneously is “unprecedented”, Langston exclaimed.

Shipping scrap from Houston to Mundra – which normally goes via the Red Sea – now costs $54/tonne going around the Cape of Good Hope, the same price as transiting the Red Sea would cost with insurance.

Red Sea rerouting has added 1.7% to ship demand, which although does not appear like much, is enough to tighten the market, pushing prices several thousand dollars higher. “The overall effect on the market has been quite decisive,” Langston said of the Red Sea issue. The Panama Canal water levels are nevertheless expected to return to normal in the second half-year.

There has been some hesitance in recent years to order new ships due to questions over decarbonisation. This has kept the Capesize market in balance, he concluded.

Adam Smith Poland

kallanish.com