Scrap market experts are looking toward Chinese and CIS steel billet prices for indications of where scrap prices are heading, following the recent pickup in Turkish scrap pricing.
At the Platts 12th annual Steel Markets North America Conference in Chicago Tuesday, Pete Meyers, vice president of ferrous sales and marketing for Metalico, said he become a "full believer" of the interaction between the scrap and billet markets.
As a general reference, Meyers said, the price to convert scrap to finished steel is $175/mt, and the price to convert billet to finished steel is $60/mt.
In mid-February, when Turkey was paying $175/mt for heavy melting scrap, the cost to convert scrap to steel was about $350/mt. At the time, billet prices were $274/mt and the price for steel made from imported billet was $334/mt, so scrap was "overpriced" by $16/mt.
"But then you get to March 8 -- right about that time the Turks announced that they were going to have severe restrictions on availability of billets through the summertime, through April to October, that immediately raised the offers for billets by $60/mt out of China," Meyers said. "It raised the billets out of CIS countries by $40/mt. It immediately raised the price of heavy melt and shred delivered into Turkey."
The swing caused scrap to be "underpriced" against billet by $13/mt, Meyers said. Based on market indications out of Turkey, scrap prices are poised to be up again in April, Meyers said.
Joseph Ward, director of business development and trading at EMR Group, added Turkish mills have been boosting their use of billet in recent years. Considering total billet and scrap imports into Turkey in 2011, billets made up 9% of imports. That figure rose to 14% in 2013 and up to 23% last year. "The Turks have leverage now," he said. "They have an alternative."
Chinese steelmakers have been pressuring the market with lower priced billets, which have also put pressure on scrap prices.
Turkish scrap imports fell 15% from 2014 to 2015 and, at the same time, Turkish imports of Chinese billets surged 926% to 1.5 million mt from 143,000 mt, Meyers said.
At the conference sidelines, Terance Ko, managing consultant at Hatch Associates, said the surge last year in Chinese billet exports might have been a temporary phenomenon. "Iron ore prices also dropped significantly at that time, so it enabled the export of semifinished products at a price that was just breakeven. It was a level that allowed [the] Chinese to export temporarily to the Black Sea, but I think that volume has dropped substantially now," Ko said.
Exports of semifinished steel surged despite China's 25% duty on exports of semifinished steel products that has been in place since 2008, Ko said, adding this duty was reduced to 20% in December.
Market sources were unfazed by the change at the time because many of China's semifinished steel exports were being categorized as square bar, as Platts previously reported.
