World Mirror. Ferrous Metals. Quarterly Report May 2015 WORLD STEEL RECYCLING IN FIGURES. Dear colleagues,

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1 World Mirror Ferrous Metals Dear colleagues, Much of the first quarter was certainly the rough road we had anticipated. Carbon scrap markets continued deteriorating as the immense wave of Chinese semi and finished steel exports hit foreign shores. As we look forward, we can be slightly optimistic as those exports have dropped by about 27%. We have also seen a reversal of iron ore pricing that may continue for a while as well as a firming ruble. Indeed, we must temper our optimism with the clear fact that overcapacity is still prevalent in the steelmaking industry. The global utilisation rate is still mired in the low 70% range and worldwide GDP growth is still low. All that notwithstanding, we have three quarters remaining for 2015 and many of these dynamics could quickly change. I look forward to seeing you in Dubai. William Schmiedel Sims Group Global Trade Corporation President of the BIR Ferrous Division WORLD STEEL RECYCLING IN FIGURES January-December 2014 update by Rolf Willeke, Statistics Advisor of the BIR Ferrous Division World crude steel production reached 1.665bn tonnes in 2014, up 1% when compared to According to worldsteel, the Middle East - the smallest region in terms of crude steel production - enjoyed the most robust growth; production grew modestly last year in the EU-28, North America and Asia but fell in the CIS and South America. Owing to the stronger increase in basic oxygen furnace (BOF) production and the small reduction in electric arc furnace (EAF) production, the BOF steel Quarterly Report May 2015 share of total world steel production climbed to 73.9%. Looking at the main scrap-using countries, worldsteel confirms that China s crude steel production reached 822.7m tonnes in 2014 (+0.1% over the previous year) such that the country s share of world output decreased from 49.8% in 2013 to 49.4% the following year. Also last year, increases in crude steel production were registered in the EU-28 (+1.8% to 169.3m tonnes), Japan (+0.1% to 110.7m tonnes), the USA (+1.5% to 88.2m tonnes), the Republic of Korea (+8.3% to 71.5m tonnes) and Russia (+3.6% to 71.5m tonnes), whereas a reduction was recorded by Turkey (-1.8% to 34m tonnes). Global steel scrap use registered a 0.9% increase to around 585m tonnes in 2014 although developments differed from country to country According to our figures, last year produced steel scrap consumption increases in the EU-28 (+1%), China (+3%), the USA (+5.1%) and Japan (+0.6%) but a drop in Turkey (-7.3%) as well as smaller declines in the Republic of Korea (-0.3%) and Russia (-0.5%). Also worthy of note for 2014 was the increase in crude steel production among regions/countries with a high percentage of EAF production, such as the Middle East and some Asian countries like India, Indonesia, Malaysia and Vietnam. In collaboration with experts from the German Steel Federation (WV Stahl), we have calculated steel scrap usage in world steel production of around 585m tonnes for last year (+0.9% compared to 580m tonnes in 2013). Interestingly in 2014, the steel scrap proportion in global crude steel production was 35.1% whereas our statistics confirmed 53.9% for the EU-28, 10.7% for China, 70.3% for the USA, 33.3% for Japan, 45.6% for the Republic of Korea, 27% for Russia and 82.9% for Turkey. As the world s biggest steel producer, China attracts particular attention. As always, the BOF route dominated the country s crude steel production in 2014, accounting for 93.9% of the total.

2 China s steel scrap consumption climbed around 3% to 88.3m tonnes whereas the country s crude steel production grew just 0.1%. It has been suggested that China s annual consumption of steel scrap is set to exceed 100m tonnes in the coming years. It is interesting to note that the USA followed up a reduction in 2013 with a crude steel production increase of 1.5% to 88.2m tonnes last year whereas the increase in steel scrap usage was even higher (+5.1% to 62m tonnes). One of the reasons for this was last year s 4.9% upturn in EAF production to 55.2m tonnes. The EU-28 recorded an increase in steel scrap consumption last year (+1% to 91.3m tonnes) while its crude steel production climbed slightly more sharply (+1.8%). The biggest steel scrap users were Italy (+0.5% to 19.7m tonnes), Germany (-1.7% to 19.1m tonnes), Spain (+1% to 11.4m tonnes) and France (+2% to 7.7m tonnes). Our 2014 figures reveal that the small increase in Japan s steel scrap usage (+0.6% to 36.9m tonnes) was slightly greater than the growth in the country s crude steel production (+0.1%).Conversely, the Republic of Korea recorded a small drop in steel scrap usage last year (-0.3% to 32.6m tonnes) whereas its crude steel production was 8.3% higher. It is worth noting last year s small 0.5% decline in Russia s steel scrap usage whereas domestic crude steel production was higher by 3.6%, a development influenced by a drop in EAF production. Turkey recorded the steepest drop in steel scrap consumption last year (-7.3% to 28.2m tonnes) whereas the country s crude steel production dipped only 1.8%. The figures show that the EAF share of domestic crude steel production slipped from 71.3% to 69.8% last year. Steel scrap imports mainly in decline Figures for 2014 show a further steep drop in China s steel scrap imports (-42.6% to 2.564m tonnes), thus underlining the country s policy of buying more from domestic sources and of reducing imports. It is also interesting to note that, after a drop of 12% in 2013, Turkey - the world s foremost steel scrap importer - reduced its overseas purchases last year by a further 3.2% to m tonnes. In 2014, cuts in steel scrap imports were also made by the Republic of Korea (-13.6% to 8.002m tonnes), Taiwan (-4.1% to 4.272m tonnes), the EU-28 (-2% to 3.137m tonnes), Indonesia (-10.9% to 2.137m tonnes) and Canada (-12.9% to 1.52m tonnes). In positive territory were the steel scrap imports of India (+1.1% to 5.699m tonnes), the USA (+8.6% to 4.215m tonnes) and Thailand (+43.9% to 1.383m tonnes). EU-28: the world s leading steel scrap exporter Global external steel scrap trade - including internal EU-28 trade - amounted to 97.1m tonnes last year (-1.9% compared to 2013). The EU-28 was the leading steel scrap exporter in 2014 following a slender increase of 0.3% to m tonnes, duly bettering US overseas shipments which declined by around 17.1% to 15.34m tonnes over the same period. 2

3 3.616m tonnes), the Republic of Korea (-32.8% to 1.705m tonnes) and Taiwan (-11.3% to 2.682m tonnes). A downtrend was also clearly visible in Japan s overseas shipments of steel scrap in 2014 (-9.6% to 7.351m tonnes), with a sharp decline in the country s deliveries to the Republic of Korea (-19% to 3.809m tonnes) and to China (-19.1% to 2.106m tonnes). Also lower last year were steel scrap exports from South Africa (-14.2% to 1.489m tonnes) whereas overseas shipments from Canada were virtually unchanged (-0.2% to 4.51m tonnes), with the main buyer being the USA (+4.5% to 3.373m tonnes).conversely, export increases were recorded by Russia, with a strong gain of 53.2% to 5.689m tonnes, and Australia (+7.4% to 2.362m tonnes). The world s leading steel scrap exporters are major net steel scrap exporters: last year s export surplus was, for example, 13.7m tonnes for the EU-28 and 11.1m tonnes for the USA. * For more information, please note that the sixth edition of World Steel Recycling In Figures will be published at our Dubai Convention. We have extended our publication by some four pages to incorporate a total of 53 graphs and tables - eight more than in its predecessor. USA and Pacific Rim by George Adams, SA Recycling, USA Ad Hoc Board Member of the BIR Ferrous Division USA Expectations of an improved domestic steel scrap market did not materialise in the early months of the year as it became apparent that US mills had adequately protected themselves against winter shortages. During this time, the mills aggressive steel pricing was viewed by some as encouraging an influx of imported steel, with the number of steel import licences surging. The higher volume of steel imports combined with the retreat of oil prices subsequently reduced many of the mills capacity, therefore decreasing scrap demand in some regions of the USA. The main buyers of EU-28 steel scrap were Turkey (-5.6% to 9.936m tonnes), Egypt (+12.4% to 1.786m tonnes) and India (+12.5% to 1.523m tonnes). The EU-28 s internal steel scrap exports totalled m tonnes last year (+1.7% versus 2013) - a figure that confirms the active role of inter-eu trade in the raw materials supply chain which feeds into European crude steel production. The drop-off in US exports was influenced mainly by a reduction in steel scrap shipments to China (-56.8% to 0.79m tonnes), Turkey (-30.9% to In the latter part of the first quarter, steel scrap collections all but stopped due to the intense winter weather conditions in a large portion of the country. Consequently, steel scrap inventories became constrained, causing a quick shift to higher pricing. We currently see that the mills overall utilisation rate has improved slightly with the onset of spring. Scrap exports declined due in large part to much lower CFR levels, the above-mentioned harsh winter and an overall shortage of containers due to labour negotiations at the US West Coast container terminals. PACIFIC RIM China We no longer see the Chinese affecting the ferrous scrap market by how much scrap they buy, but rather by how much steel they export. January saw a near-record of 10.5 million tons leave the country. Since 3

4 then, we have seen this number decrease, to a great extent due to the removal of boron-added steel products from the list of those steel grades qualifying for tax rebates. That said, the 7.6 million tons exported in March is still very high; when annualised, this is still more than the total steel production of the USA. South Korea An increase in Japanese steel scrap prices and a strengthening Japanese yen gave US exporters an opportunity to sell more steel scrap into the South Korean market. Therefore, we saw a slight increase during the first quarter compared to the final quarter of We currently see a more active South Korea as spring construction has begun and some of the top long product producers are running at higher rates. Taiwan January-to-March steel scrap volumes from the USA increased from the previous quarter by around 14%. Although Taiwanese rebar producers increased their sales during this period, we now see these producers under pressure as they seek liquidity for their products. Annual electricity restrictions enforced by the government will become effective from May through September and we expect these will adversely affect the Taiwanese market as in previous years. South East Asia The purchasing of steel scrap during the first quarter has been lacklustre in this region due to consumption of steel exported from China. EU by Tom Bird, Mettalis Recycling Ltd Board Member of the BIR Ferrous Division The first quarter of 2015 was a challenging period across all EU regions. The export market saw a marked decline from the end of January. This translated for February and March into combined reductions from January levels of around Euro 50 per tonne into EU home markets. Turkish prices fell from a high of around US$ 320 per tonne for HMS in January to the US$ 230 level in a relatively short space of time. It is always very difficult to legislate for this magnitude of reduction and therefore the impact on business was significant. Iron ore prices continued to weaken and an abundance of Chinese finished product in the market served to dampen product prices. Billet prices dropped close to US$ 360 per tonne and rebar slid to the low to mid US$ 400s. The EU short-sea market was extremely quiet during the first quarter, with prices also following suit. The container market, although relatively active, saw significant reductions in price levels as weak sentiment prevailed in the Indian, Pakistani and wider Asian markets. Towards the end of the first quarter, there was strong resistance to further drops and something of a stand-off between buyers and sellers on the export market. Towards the end of March, EU mills were talking further drops for April, but this changed quite rapidly to a flat market and then to an increase. The export market in April then started to move with, at first, gradual, small increases but business was sparse as buyers were unwilling to accept increases based on the finished product market. Iron ore levels also stayed flat, but sellers held out and continued to offer at higher prices. The last two weeks have seen an interesting market with a wide spread in the business being conducted. Each deal was being viewed as potentially the new top, only for a couple of days without business to be followed by further increases. At the time of writing, HMS is now pushing US$ 280 per tonne out of Europe. This is putting pressure on buyers given that rebar and billet levels - although improved at around US$ and US$ 415 per tonne, respectively - need to move upwards. Iron ore levels are slightly higher and so this is helping sentiment. The second quarter certainly seems to be stronger than the first; the question is how much more is there in the market. Even at US$ 280 per tonne for HMS, this is still significantly below levels that prevailed at the beginning of January. EU domestic markets will undoubtedly move upwards for May and we are seeing more interest from EU short-sea markets. Container business is also more active. Once again, exchange rates have played a significant part in pricing and we have seen three- and four-point movements between the Euro, pound and US dollar in a 48-hour period. The pound dropped as low as 1.46 to the US dollar and is trading at 1.51-plus at the time of writing. As has been outlined before, this plays a significant role in the pricing of EU material for export. Material arisings are still under pressure across EU regions with yards, as noted in the previous Mirror report, still significantly down on optimum levels. Some of the larger operators are still closing yards in certain areas. The lack of material increases competition, with much of the benefit of higher prices being given away as merchants compete for tonnage. The outlook as we move towards the middle of the year is uncertain, but there are definite signs of improved trading in the medium term. One cautionary note is that, in order to see a sustained improvement for the steel scrap industry, we need a buoyant and healthy steel sector. JAPAN by Hisatoshi Kojo, Metz Corporation Board Member of the BIR Ferrous Division Domestic scrap prices had been suffering from an easing supply-demand balance in both the domestic and overseas markets, as well as from an iron ore price decline of more than 20% in the six months to March. Therefore, Japanese scrap was considered relatively inexpensive and inquiry levels from overseas recovered. The export price in the Kanto area actually turned upwards in March (for April shipment). 4

5 And in April, the Kanto scrap price rose even further. The purchase price for H-2 at electric arc mills is around Yen 25,500 per tonne (US$ ); this was the highest level achieved in two months, representing a 5% increase from the recent low in mid-march. The price rebounded as loading advanced for remaining export contracts while generation by manufacturers and wholesale dealers declined. Electric arc mill major Tokyo Steel increased the purchase price at its main Utsunomiya mill in the Kanto area for the first time in five months by Yen 1000 per tonne (US$ 8.33) to Yen 25,500 (US$ ) with effect from April 21. However, domestic electric arc mills are keeping their production levels low as they are in the middle of inventory adjustments for steel materials and therefore the domestic demand upsurge for scrap is absent. Having reduced their inventories and devoted themselves to spot purchases during the downward phase for export market prices, steel mills in South East Asia boosted their purchasing activity as soon as they saw the Japanese scrap market price reach the bottom in mid- March. The H-2 FOB price duly increased by some Yen per tonne (US$ ) from Yen 22,000 (US$ ) to Yen 25,500-26,000 (US$ ) in mid-april. However, crude steel production is stalling in Turkey and Korea, such that scrap purchase momentum in these major importing countries is not like it was. Although there will be periods in which the price will go up when they come into the market, the price will decline again as soon as they re-adopt their wait-and-see posture; this is the cycle that seems to have been repeated. At the time of writing this report on April 24, the export contract price for H-2 for South East Asia is Yen 25,000-25,500 per tonne (US$ ), or Yen 1000 (US$ 8.33) below its recent peak. In the iron ore market, some mines have announced production stoppages but four majors in this sector have expressed their desire to maintain production increases. The spot market for 62% Fe iron ore is forecast to hover around US$ 50 per tonne CFR given that the fundamentals surrounding the steel sector have not changed. It is generally considered that the Japanese scrap market has risen in reaction to the excessive price fall of recent months and that this will come to an end sooner or later unless we see some improvement in both the iron ore and finished steel markets. *The exchange rate used in this report is US$ 1 = Yen 120. INDIA by Zain Nathani, Nathani Group of Companies Vice-President of the BIR Ferrous Division The Indian scrap market was taken by surprise by the notification from the Directorate General of Foreign Trade (DGFT) on April which sought to revise the preshipment inspection (PSI) rules for scrap imports into India. Over the last few weeks, the Metal Recycling Association of India (MRAI), with the support of the BIR and various other local and national associations, has worked tirelessly to explain to the Indian government the impracticalities and difficulties of implementing these new rules, especially without any prior feedback from the trade or without any grace period or advance notice. The MRAI has been successful in getting the DGFT to put the new rules on hold for now but, even at the time of writing, there is no clarity regarding what the final revised rules will be or when they will go into effect, hence the scrap trade into India has come largely to a standstill for any new bookings from the USA, mainland Europe and the UK. Sales from the Middle East are continuing owing to the shorter transit and lead times involved. Foreign suppliers and Indian importers are extremely concerned about any increase in the costs of PSI and the feasibility of implementing the new rules. While the MRAI fully supports the Indian government in its bid to prevent radioactive scrap and explosives from being shipped in metal scrap, we are also hopeful that the government will take the views of the domestic and international trade into account. Indian ferrous scrap imports in the 10-month period from April to January were approximately 4.4m tonnes, thus already higher than the previous year but short of the import figure for 2012/13. In large part, this is because India s scrap-consuming steel industry has yet to recover fully and more than 9m tonnes of cheaper finished steel was imported last year from China, Ukraine, South Korea, etc. RUSSIA AND UKRAINE by Andrey Moiseenko, Ukrmet Ltd, Ukraine Board Member of the BIR Ferrous Division Russia Last year, steel scrap collections in Russia increased slightly to 28m tons. Domestic consumption and exports by rail to Belorussia were unchanged, with only seaborne exports climbing to 4.1m tons from 3.7m tons in Last year, and especially in the fourth quarter, all steel mills and exporters enjoyed the benefits of a weak ruble and reported good results in spite of the weak international market. However, the situation is different this year: the weak ruble has caused low steel demand on the domestic market and export demand is not sufficient to maintain the same production rates. Furthermore, the Russian currency is not as weak as it was at 51 rubles to the US dollar rather than the 65 rubles to the dollar seen just a few weeks ago. Steel mills have already announced production cuts and scrap purchasing prices are decreasing in all regions. The steel scrap price on the domestic market is falling sharply and could reach the 9000 rubles per ton delivered to mill level in May. Therefore, we expect more scrap to come forward for export in the coming months, although the increase 5

6 will not be so large owing to logistical and port limitations. If steel mills fail to keep annual production rates at the same level as last year, we should expect a scrap collection decrease this year when compared to Ukraine According to the statistics, steel scrap collections in Ukraine fell by 400,000 tons last year to 5.3m tons. Exports by sea to Turkey and by rail to Moldova almost quadrupled to 900,000 tons from the 2013 figure of 250,000 tons. Although collections are at a historic minimum, prices are currently at a historic maximum of more than 4100 grivna per tonne. One of the main reasons for the collection decrease is the military conflict in the Donetsk and Lugansk regions. This conflict is taking place in the most industrial regions of the country and operations at some steel mills were stopped for several months last year owing to logistical problems. Scrap cannot leave the area controlled by rebels. Moreover, many of the OEM factories in Ukraine that had been supplying high-quality scrap to the market have now stopped operations because they were oriented on the Russian market and, owing to the different political and economic situation, new orders are not coming through. New export quotas have not been distributed as yet. The new government is trying to change the system of quota distribution in order to make it more regular and transparent - but without success to date. In summary, the Ukrainian market is well balanced, supply is quite tight but not critical, and no serious increase in scrap export flows is foreseen for this year. BIR declines all responsibility regarding the content of these pages. The reports given represent the personal opinion of their authors and have only a reference value. Bureau of International Recycling Ferrous Division BIR - REPRESENTING THE FUTURE LEADING RAW MATERIAL SUPPLIERS Bureau of International Recycling (aisbl) Avenue Franklin Roosevelt 24 T bir@bir.org 1050 Brussels - Belgium F