High scrap prices led to significant local growth in the domestic scrap market in January. The high dynamics of key indicators could speak of the recovery of the scrap procurement market, if not for their situational and temporal nature.The growth of market indicators in January was:
- scrap collection – by 61.7%, to 318 thousand tons;
- supplies – by 53.7%, to 283.7 thousand tons;
- export – 6.7 times, up to 19.2 thousand tons;
- imports – 5.3 times, up to 2.1 thousand tons.
Exports have risen thanks to higher world prices. Companies in the industry took advantage of the moment when domestic prices did not keep pace with global growth and sufficient profit margins (world price - export duty) were formed for export profitability. Almost the entire volume of exports went to Turkey – 18.5 thousand tons for $5.5 million. The average delivery price was $300.3 per ton.
The dynamics of the market in the last months of last year and January partially helped scrap collecting companies to improve their financial position, but everyone understood that the high price situation would not long. According to Fitch agency estimates, world prices for metal products will decline by the end of the first quarter of this year. And this process has already begun. In the second half of last year, prices rose due to a rapid recovery in demand for metal products, while metallurgists were slowly returning steelmaking facilities that had been shut down in the spring due to the pandemic. Thus, demand grew rapidly, and stocks and production capacity were insufficient to drive up prices, which, however, could not be sustained.
In February, the dynamics of the domestic market will slow down sharply. This will be affected by a decrease in the effect of high prices and the motivation of enterprises in the industry due to the fall in January prices for scrap on the world market by $50-60/mt. Since the beginning of February, metallurgists have systematically reduced purchase prices by 17% every week – to UAH 7500 per ton.
The situation in the industry may improve if the scrap export duty ends in the second half of the year. Ukrainian companies always have export opportunities with short logistic leverage to Turkey. This country maintains high rates of steel production and scrap consumption. In 2020, steel production in Turkey increased by 6% – to 35.8 million tons, which required an increase in scrap metal imports by 19.3% – to 22.5 million tons.
Nevertheless, metallurgists will lobby for the preservation of the duty, which will lead to a further drop in scrap procurement and, in the future, to a shortage of raw materials for metallurgical enterprises.
