Europe stainless scrap price pressure to grow

European stainless steel scrap prices are poised to fall further from an already-low level in the near term on the twin forces of reduced domestic mill production and declining prices in major export markets in Asia, trading firms told Argus on the sidelines of the Bureau of International Recycling convention in Abu Dhabi on 23-24 October.

"Prices could test levels not seen since the early stages of the [Covid-19] pandemic," a German trading company said.

The Argus assessment for stainless steel scrap 304 (18-8) solids cif Rotterdam averaged $1,140.62/t in 2020, when the pandemic was at its peak. While current prices are well above this level, at just over $1,400/t, European mills are heard to be collectively bidding lower while also lobbying for scrap to be included in Europe's Critical Raw Materials Act that limits scrap outflows beyond the bloc.

During the convention, the British Metals Recycling Association said the country's steelmakers have highlighted the current paucity of raw material to the British government in a bid to limit exports to the EU and elsewhere.

The majority of scrapyards in Europe continue to report a shortage amid a stalled recovery of the finished stainless steel industry this year, with suppliers mostly worried that any regulatory action on exports would provide a significant further downside to prices.

"Whenever there are low prices, it is less attractive to release scrap from lower-tier collectors and sub-suppliers," said Dr Gerhard Pariser, group sales executive and head of corporate development at Oryx Stainless. "This makes balancing supply and demand a challenge."

Alongside the bearish sentiment in Europe, a steep fall in scrap prices in India, the largest export market, has hit European sellers hard given that it sends about 300,000t of scrap to India every year. EU scrap exports to India surged by 61.5pc in the first eight months of this year to 137,263t, trade data show, as sellers were faced with large inventories but low domestic demand.

But prices now have fallen so low that sellers are not interested, delegates heard. According to Hitesh Agrawal of Prime Stainless DMCC, India's scrap demand is expanding at a rate of 8-10pc/yr on a ramp-up in domestic stainless steel capacity. But India's reliance on Europe is poised to fall because of an expansion of India's domestic scrap industry, the introduction of the carbon border adjustment mechanism tax and Europe's own expected surge in scrap demand in the medium and long term, Agrawal said.

Delegates at the convention said Europe was the outlier in world stainless steel consumption trends. According to the latest data released by WorldStainless, Chinese stainless steel output increased by 8.2pc year on year in January-June to 17.6mn t. India's per capita stainless steel consumption climbed to 2.8kg from 2.5kg during the second quarter, and construction activity in the UAE jumped by 50pc over the same period, according to data presented at the BIR conference. But in contrast, European production fell by 13.4pc on the year over the same period to 3.136mn t, highlighting the negative impact on the sector of high interest rates and stocking.

By Raghav Jain