BIR World Mirror on Ferrous Metals July 2014

This Mirror is also available in the members’ area section of our website www.bir.org

Quarterly Report – July 2014

PRESIDENT’S OPENING REMARKS Dear friends and colleagues, I can still hear the words of analyst Christopher Plummer of Metal Strategies

Inc. as he addressed our recent Ferrous Division meeting in Miami: “The best has yet to hit the market.” According to Mr Plummer, more than 60% of the steel-consuming markets worldwide are still more or less below their pre-crisis levels of 2008/09. Although I very much appreciate his optimistic words, I fear that the recovery in our markets is still on a very slow path. Nevertheless, recovery is on its way. Scrap demand is growing in most countries worldwide and economic forecasts are positive. Still missing from our markets, however, are strong demand signs from, for instance, China, India and Turkey.

Unless that happens, we will remain on that slow path. Steel scrap exports to China have tended to be at the lower end for some 15 years, India is hoping for impetus from its new government and a question mark continues to hang over Turkey. I fear that scrap markets will remain in only a semi-healthy condition for the months ahead and perhaps even for years to come as iron ore prices are weak and external positive factors are not yet visible. All our industry can do until the “Golden Years” return is to concentrate on reducing market overcapacity step by step, to work on its image as a first-class raw materials supplier, and to be ambitious regarding quality and standards.

Christian Rubach

TSR Recycling President of the BIR Ferrous Division

BIR World Mirror on Ferrous Metals July 2014

This Mirror is also available in the members’ area section of our website www.bir.org

WORLD STEEL RECYCLING IN FIGURES January-March 2014 update

by Rolf Willeke, Statistics Advisor of the BIR Ferrous Division

Figures from worldsteel for the first three months of 2014 confirm an increase in global crude steel production of around 2.5% to 405.7m tonnes when compared to the same period in 2013.

Statistics for January-March 2014 show a year-on-year crude steel production increase in China (+2.4% to 202.7m tonnes), the EU-28 (+6.7% to 43.8m tonnes), the USA (+0.1% to 21.64m tonnes), Japan (+3.5% to 27.6m tonnes), the Republic of Korea (+5.2% to 17.5m tonnes) and Russia (+0.4% to 17.2m tonnes) whereas negative growth was recorded in Turkey (-0.5% to 8.4m tonnes). Global crude steel capacity utilisation in March this year was 79%, or 1.4 percentage points higher than in the previous month. Mainly positive developments in steel scrap consumption In the first three months of 2014, there was a strong increase in steel scrap usage for crude steel production in Japan (+10.4% to 9.4m tonnes). Interestingly, the gain was greater than the 3.5% upturn in the country’s crude steel production noted above. Growth in steel scrap usage was also recorded in the EU-28 (+5.4% to 23.7m tonnes), China (+1.8% to 23.1m tonnes) and the Republic of Korea (+3.1% to 8.3m tonnes). For these countries, increases in steel scrap usage were lower in percentage terms than their respective gains in crude steel production whereas Russia’s upturn in steel scrap consumption (+1% to 3.06m tonnes) was slightly greater than the increase in domestic crude steel output. In contrast, the January-March 2014 figures show a small decline in steel scrap usage in the USA (-1.5% to 12.9m tonnes) and Turkey (-0.7% to 7.28m tonnes). Substantial drop in China’s steel scrap imports China recorded a substantial drop in overseas steel scrap purchases in the first three months of 2014 (-56% to 0.561m tonnes), thus underlining the country’s new policy to buy more steel scrap from domestic sources and to reduce imports.

Feedback from the market suggests this considerably lower import figure was also influenced by the drop in iron ore prices. Also reducing their steel scrap imports in the first quarter were the Republic of Korea (-1.2% to 2.32m tonnes), India (-47.1% to 0.993m tonnes), Taiwan (-26.1% to 0.857m tonnes), Canada (-52.9% to 0.312m tonnes), Malaysia (-49.7% to 0.228m tonnes), Belarus (-31% to 0.198m tonnes), Mexico (-21.3% to 0.181m tonnes) and Thailand (-6.5% to 0.174m tonnes). After a reduction of 12% in 2013, the world’s foremost steel scrap importer Turkey increased its overseas steel scrap purchases by around 1.2% to 4.395m tonnes in the first quarter of 2014. Also in positive territory were the steel scrap imports of the USA (+22.8% to 1.046m tonnes), the EU-28 (+1.2% to 0.782m tonnes) and Japan (+413.6% to 0.228m tonnes). EU-28: the leading steel scrap exporter in the first quarter In the first quarter of 2014, EU-28 steel scrap exports were almost unchanged (-0.5% to 3.958m tonnes). As a result, the EU-28 bettered US overseas shipments, which declined around 36.3% to 3.431m tonnes in the same period. The main buyers of EU-28 steel scrap were Turkey (+4.2% to 2.272m tonnes), Egypt (+9.7% to 0.565m tonnes), China (-29.6% to 0.088m tonnes) and Pakistan (+31.1% to 0.08m tonnes). The decline recorded by the USA was influenced mainly by the sharp reduction in steel scrap shipments to China (-70.4% to 0.162m tonnes), Turkey (-56.6% to 0.712m tonnes), Taiwan (-25.9% to 0.596m tonnes), the Republic of Korea (-14.5% to 0.543m tonnes) and Canada (-13% to 0.214m tonnes). A strong downtrend was also clearly visible in Japan’s overseas shipments of steel scrap in this year’s first quarter (-38.1% to 1.509m tonnes). There was a steep decline in shipments from Japan to the Republic of Korea (-34% to 0.98m tonnes), China (-43.1% to 0.437m tonnes), Vietnam (-36.4% to 0.049m tonnes) and Taiwan (-53.6% to 0.039m tonnes). Conversely, export increases were posted in the first quarter by Canada (+8.6% to 1.183m tonnes), Russia (+28.4% to 0.854m tonnes), Australia (+18.2% to 0.461m tonnes) and South Africa (+18.7% to 0.393m tonnes).

BIR World Mirror on Ferrous Metals July 2014

This Mirror is also available in the members’ area section of our website www.bir.org

BIR World Mirror on Ferrous Metals July 2014

This Mirror is also available in the members’ area section of our website www.bir.org

US and Pacific Rim by Blake Kelley, Member of the BIR Ferrous Division

Sims Group Global Trade Corporation

USA In early June, domestic dealer scrap prices were unchanged to down US$ 20 per tonne depending on the grade and location. Prime grades were the

strongest and shredded was the weakest, while inland price drops were greater than on the coasts or river system. Prices for prime grades ranged from US$ 400 to US$ 430 per tonne, shredded from US$ 380 to US$ 390, and HMS from US$ 365 to US$ 375. The composite HMS price was at US$ 357.50 per gross ton delivered in late June. Steelmakers re-entered the market to buy more scrap but found reluctant dealers seeking more money, and prices began to rise as a result. Current trade opinion expects July pricing to be higher. Raw steel production in the week ended June 21 increased by 1.6% to 1.888m net tons and 78.2% of capacity. In April, US scrap exports climbed 0.6% to 1.34m tonnes to annualise to just over 16m tonnes as compared to the year-to-date rate of 14.31m tonnes, of which 21.7% was destined for Turkey, 18.4% for Taiwan and 14.5% for South Korea. In May, US steel imports increased by 7% month on month to 4.02m net tons and their highest level in 10 years. In the same month, service centre steel inventories fell to 8.42m net tons or to 2.2 months’ supply at the current sales rate. Domestic car sales could exceed 16m units in 2014 and this is providing much of the impetus behind currently strong sheet steel pricing.

Pacific Rim

China Domestic scrap prices are reportedly around US$ 362 per tonne delivered, including VAT. China imported 227,317 tonnes of scrap in May for an annualised 2.728m tonnes. The domestic rebar price is US$ 421 per tonne ex works, excluding VAT. In the first 20 days of June, raw steel production by members of the China Iron and Steel Association appears to have set a record based on preliminary data. The manufacturing PMI increased to 50.8 in May.

South Korea Several steelmakers have announced their intention to lower domestic scrap prices by 5000 Won per tonne (US$ 5) and yet there are inquiries to buy deep-sea cargoes. South Korea continues to import scrap from eastern Russia and Japan, with purchases from the latter exceeding 3.9m tonnes in the first five months of 2014. Perhaps as a result of increased blast furnace iron consumption, total scrap imports fell 24% month on month in May to 609,000 tonnes and to an annualised 7.272m tonnes versus a year-to-date annual rate of 8.88m tonnes. Some steelmakers are reorganising their finances following too many years of difficult business conditions. Taiwan Taiwan continues to rely on a mix of domestic and imported scrap, with the latter arriving primarily by container but including some short-sea and deep-sea bulk cargoes too. There are reports of billet and rebar imports from China which are making steel buyers more cautious. Summer energy cost increases have slowed some producers while others have maintenance under way. China Steel Corporation has announced a reduction in its HRC price to US$ 665 per tonne ex works. South East Asia The prevailing Japanese H-2 export price delivers into the region at around US$ 385-395 per tonne C&F and so trade expectations for HMS 80/20 are higher than that - but may not be immediately achievable. Vietnam, Malaysia, Thailand and Indonesia have been active buyers. In April, Thailand’s scrap imports jumped 158% month on month to 104,000 tonnes, well over the year-to-date monthly average. HRC prices are generally US$ 520-540 per tonne C&F South East Asia. China is offering billet into the region at US$ 490 per tonne and rebar at US$ 470 as a result of export taxes favouring finished steel grades. There are many new steel plants nearing start-up throughout South East Asia. Summary In May, the daily rate of world raw steel production increased 0.2% from April to an annual rate of 1.662bn tonnes and the global steel industry operated at 78.5% of capacity. Year-to-date world raw steel production was 2.4% higher than last year at an annualised 1.642bn tonnes.

BIR World Mirror on Ferrous Metals July 2014

This Mirror is also available in the members’ area section of our website www.bir.org

Based on an extrapolation of five months of World Steel Association data, the world this year will produce 62m tonnes more raw steel and 34m tonnes more iron than in 2013, while apparently consuming 28m tonnes more purchased scrap.

Russia and Ukraine by Andrey Moiseenko, Board Member of the BIR Ferrous Division

Ukrmet Ltd

Russia The domestic market is quite well balanced. Most mills had not prepared large winter stocks for the beginning of the year, mainly because of cash-flow optimisation and relatively negative expectations for

2014. Nobody could have expected the ruble to become so weak this year owing to the Ukrainian crisis. And so instead of the usual decreases, most mills kept their prices firm during the spring in order to secure a flow of scrap. This trend can still be observed in the summer months. The ruble has already recovered somewhat but any fall in prices seems unlikely in the coming months. All mills are holding orders and have no plans for production cuts. In July, moreover, a seasonal collection decline is anticipated in some regions owing to the grain season. Indeed, this has already started. Russian steel scrap exports to all markets have grown as a result of the weak ruble. However, most of the increase has taken place through the port of St Petersburg as a result of limited domestic market requirements in the region. Most exporters had a quiet spring from the perspective of margins but June was quite difficult, mainly due to the exchange rate recovery from 36 rubles to the US dollar to 33 rubles. Also, the market in Turkey has fallen by US$ 10 per tonne. For July, therefore, rather difficult conditions are anticipated because freight costs are already higher owing to the start of the grain season. Ukraine The domestic market is firm and all mills, even in the Donetsk region, are operating well and generating profits because the weak grivna is stimulating export sales. Steel scrap stocks are at a low but not critical level. A high degree of discipline has been seen in payments for scrap deliveries, with some mills prepared

to give money in advance in order to secure a flow of material. Most probably, the market in July will be stable. Steel scrap exports are going well and are expected to remain around current levels. Ukraine is also exporting to Moldova by rail on a continuous basis. Steel scrap imports are almost nil because main supplier Kazakhstan has prolonged its export ban.

India by Zain Nathani, Vice-President of the BIR Ferrous Division Nathani Group of Companies

India’s ferrous scrap imports in the period from April 1 2012 to March 31 2013 amounted to 6.9m tonnes. However, in the subsequent 12 months to March 31 2014, the country’s imports reached only 3.8m tonnes for a year-on-year drop of more than 45%. This substantial decrease was driven

by such factors as import duties levied on ferrous scrap and a slow overall economy.

But with the national elections now over, there is optimism that the new government will focus on economic growth and infrastructure projects. There is renewed hope that, given all the good work being done by the Metal Recycling Association of India (MRAI), the domestic metal recycling industry will also receive the necessary support from the new government. On the market front, international ferrous scrap prices have been in a relatively narrow band for the last four to six weeks, with recent downward pressure on pricing. Indian mills returned to the scrap market in large numbers at the end of May and early June, although this had more to do with domestic iron ore availability issues rather than with strong demand for steel. For July, the international market is under some pricing pressure and it remains to be seen whether price levels will be sustained throughout the rest of the summer. However, supply side constraints persist as feedstock inflow into yards continues to be extremely tight. On a positive note, the Indian economy is once again poised for strong growth in the coming months and domestic steel demand is expected to rebound later this year.

BIR World Mirror on Ferrous Metals July 2014

This Mirror is also available in the members’ area section of our website www.bir.org

Japan by Hisatoshi Kojo, Board Member of the BIR Ferrous Division Metz Corporation

Despite concern that the April 1 increase in Japan’s sales tax from 5% to 8% would have an adverse influence on the economy, public works and the automotive and shipbuilding industries have been firm and the export market has been

recovering. As a result, crude steel production in the period from April to June was expected to exceed 27.7m tons compared to the original prediction of 27.8m tons, and so the tax increase has not had much impact. Japanese crude steel production for the first five months of 2014 was 35.293m tons for converter steel (+0.3% over the corresponding period in 2013) and 10.815m tons for electric steel (+5.4%), giving a total of 46.108m tons (+1.5%). Year-on-year production increases have been recorded for each of the last 10 months. Electric arc furnace mills will initiate their summer production cuts after July, although the trend towards higher output than in the corresponding period of 2013 is expected to continue such that domestic scrap supply and demand are likely to remain in balance for a while. The USA, the world’s steel scrap price leader, is performing well as its weekly crude steel production has been over 1.8m tons for seven consecutive weeks. Market prices in July are expected to show an increase of US$ 15-25 per tonne over June. It is generally believed that the US scrap price will adopt a strong tone for the time being. For the Japanese export market, mills in South Korea have replaced their counterparts in Vietnam and Taiwan as the dominant buyers since mid-May. Given that Russian scrap was purchased at US$ 375-377 per tonne CFR and that offer prices for US scrap were raised to US$ 385-390 on the same CFR basis in June, Korean mills sensed a rising price trend and duly increased their bid prices to Yen 34,800-34,900 per tonne FOB (US$ 341.18-342.16). However, many companies are unable to reach the break-even point owing to the slump in the building materials market and so a strong stand has been taken against increasing purchase prices. And when compared to the current US scrap price, Japanese scrap might not be considered a good

buy if it were to reach Yen 35,000 per tonne FOB. Therefore, it is difficult to believe Japanese export prices will continue to climb. Although Vietnam and Taiwan procured Japanese scrap in the period from February to April this year, the steel product markets in both countries are depressed owing to cheap imports from China, with the result that they cannot break even with a scrap price above US$ 370 per tonne CFR for Vietnam and US$ 360 per tonne for Taiwan. Neither of these countries has purchased Japanese scrap in the past month and a half - and it remains difficult for them to do so for now. The drop in the iron ore price is connected directly to the decline in the melt iron cost, and steel price reductions in South East Asia might become a burden for the rising scrap market. Considering the above-stated situation, Japan’s scrap export market is expected to enter a consolidation phase unless the US scrap price goes higher or the Yen’s low exchange rate falls even further. * Unless otherwise stated, currency conversions in this report are on the basis of US$ 1 equalling Yen 102 while references to Japanese scrap mean the H-2 grade.

EU

by Tom Bird, EFR President

As stated in my report presented to the recent BIR World Convention in Miami, there has been generally more optimism from steel producers within Europe, with ArcelorMittal talking about the “green shoots of recovery”. Nevertheless, there

remains some way to go for the steel industry as a whole and still some challenges to overcome. It should be noted that the global long steel products market is still characterised by uncertainty amid the adverse effects of ongoing political tensions. The market combines areas where business is reasonably good with some others where business is weak. The second quarter of 2014 saw some initial improvement in the market although, towards the end of the period, there was a softening of prices as Ramadan approached. The European market for steel scrap was generally sideways for June although

BIR World Mirror on Ferrous Metals July 2014

This Mirror is also available in the members’ area section of our website www.bir.org

many operators were anticipating a reduction in price levels. Although prices have fallen into the Turkish market as predicted, the reductions have not been that significant; sales prices out of the EU into the Turkish market have averaged around the US$ 360 per tonne level for composite cargoes. The Turkish domestic market remains strong for finished products and this is holding price levels up. The outlook seems to be for continued strength with government infrastructure projects going ahead. For the third quarter of 2014, expectations are cautiously optimistic. Despite the onset of Ramadan, price levels in dollar terms are still holding up. For July across most EU regions, there is an anticipation of small price reductions on most grades. However, this may be tempered by demand, which is holding up relatively well. Most merchants’ margins are still under pressure given ongoing competition for material; volumes into some operations are still as low as 50% of the norm. Traditionally one of the main consumers of EU scrap, Spain continues to be relatively quiet with more focus on domestic supplies and fewer imports. This is a reflection of reduced production levels at Spanish mills as the country gradually lifts itself out of the economic difficulties seen since 2008.

But again, there are signs in Spain of improvements and more activity is anticipated in the third and fourth quarters. As mentioned in Miami, rationalisation is also taking place, with some of the larger companies reviewing their operations and closing yards in certain regions, thus reflecting the downturn in business. The European domestic market has been very challenging and, despite a generally firmer market in US dollar terms this year, the EU has the added pressure of continuing exchange rate movements, with the pound and Euro recording recent highs against the dollar within the last few days. This will undoubtedly have an impact on settlement prices for July. The outlook for the third and fourth quarters remains cautiously optimistic. Demand is holding up in the EU and the domestic market in Turkey remains strong for finished product, so we should still see a steady market. Areas of concern are the continued political instability in the Middle East and ongoing developments in Ukraine. These two important political elements could impact adversely on sentiment and ultimately demand. Many commentators are citing iron ore price levels, and the disparity to scrap, as a cause for concern: this is undoubtedly an influence, but scrap still seems to be relatively stable despite the recent weakness in ore prices.

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The reports given represent the personal opinion of their authors and have only a reference value.