Highlights of the Week

The Ship recycling market is on a temporary standstill as there is a drastic difference in the price expectations of the ship owners, cash buyers and the recyclers. Offers from the end buyers of all recycling destinations have taken a hit in past four weeks due to their depreciating currencies, falling steel demand and rising inflation. In the subcontinent market, the recyclers are seeking tonnage but at prices that are lower than the prevailing levels and the demand is more favourable towards small and mid-sized tonnage as the banks in Pakistan and Bangladesh are discouraging larger value transactions because of depleting foreign currency reserves. With the ongoing strong freight rates causing extreme scarcity of units available for recycling, it remains to be seen at what levels the end buyers will compete in the coming month for securing tonnage as their inventory levels drop.

Oil prices climbed again this week and WTI is currently trading at USD 114 per barrel on signs of tight supply ahead of reopening of Shanghai from June 1, declining U.S. crude inventories and the prospect of an EU ban on Russian oil as diplomats are working on ways to bring Hungary on board. Even without a formal ban, much less Russian oil is available as buyers and trading houses have avoided suppliers from the country. Bunker supply remains tight in many ports around the globe as replenishment stocks are getting delayed causing demand supply mismatch.

The US Federal Reserve meeting’s minutes have released which showed that all participants agreed to a 50-basis point interest rate hike and laid out plans for aggressive policy tightening to begin in June.

Domestic prices under pressure

The offer prices from end buyers continue their downtrend as the domestic steel prices which were correcting in tune with global trends got a jolt as the government surprised the steel industry with export duty on almost all the major steel products (including stainless steel).

Government has waived off import duty on raw materials like coking coal and ferronickel and export duty is hiked to 50% on iron ore and by 15% on some steel intermediaries. The imposition of a 15% export duty will remove the export price arbitrage over domestic prices and increase supply in the domestic markets, leading to further correction in steel prices. Industry associations have requested the government to waive export duty on existing contracts which have been agreed at earlier rates

Inquiries rise as inventories plummet

The end buyers of Chattogram started inquiring for tonnage as some yards are in the final stages of recycling their existing units. The inquiries strictly remained for small to mid-sized tonnage as the banks are levying higher cash margins to restrict foreign currency outflows.

Due to depreciating Bangladeshi Taka and lower steel demand from end-users, the imported scrap market has not yet picked up. Buyers continue to book small quantities in order to meet their present requirements while closely monitoring the market for a clearer picture.

Steel mills have increased Rebar offers by USD 10/MT this week due to higher raw material prices. With approaching monsoon season, sales are likely to remain subdued.

Market remains muted

The recycling market of Gadani is being caught up in turmoil due to increasing political and economic instability in the country. This week the transportation remained disrupted due to a march organized by ousted Prime Minister Imran Khan’s party to press for the dissolution of the National Assembly and demand fresh elections in the country.

Steel market participants halted new purchases of containerized ferrous scrap as the pace of PKR decline left them unable to gauge new price points or predict how deals would translate to landed costs by the time of delivery.

Pakistani Rupee advanced by 2% as the government withdrew fuel subsidies and increased fuel prices to meet a key IMF condition for reviving the bailout program. It is currently trading at USD 199.50/USD.

Slight improvement in market sentiments

Domestic steel market has started showing positive sentiments after a prolonged period of sluggish demand as few mills have resumed placing orders at the current levels.

Turkish exports are likely to benefit from the export tariffs imposed by the Indian government on steel products as it will boost the competitiveness of Turkish steel industry in the global markets.

The Turkish Central Bank kept its benchmark interest rates unchanged at14% for a fifth consecutive month despite soaring inflation and depleted foreign exchange reserves, extending a pause that is resulting in a weakening Lira. The currency is presently trading at TL 16.40/USD.