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Why scrap prices are falling while iron ore is getting more expensive

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Iron ore prices have increased by 25 percent since the beginning of the year, while metal scrap in the world market has fallen in price by 7 percent.

Why scrap prices are falling while iron ore is getting more expensive

Draconian import duties on steel and aluminum, designed to protect the US steel industry, are starting to have international repercussions in the most unlikely places, such as when Malaysia launches an anti-dumping investigation against steel imported from Turkey, a country hit hard by the changed rules US imports.

What upset the steel industry in Malaysia is the flow of cheap steel from Turkey that used to go to the US market. This led to a request from the Malaysian Metallurgical Association for a government investigation into whether steel is being dumped from Turkey and Singapore at a price lower than the domestic price of exporting countries.

The facts will take time to investigate the dumping, but a few days before the Malaysian request to investigate the flow of steel products from Turkey, the investment bank report identified part of the problem as a worldwide surplus of scrap steel.

Surplus steel scrap

Turkey is the world's largest importer of scrap used in electric arc furnaces for the production of exported products such as rebar used in construction projects.

The United States was one of the largest markets for Turkish steel, but with the increase in import tariffs, Turkish steel mills needed to find new markets.

The end result is a curious case of what could happen when a fundamental change in the functioning of an entire industry occurs, and the root cause of the problem Malaysia is facing is an excess of cheap Turkish steel.

According to Macquarie Bank's analysis of the steel market, the 50% import tariff imposed by the US on Turkish steel caused significant changes in the global market for some steel products and scrap because Turkey is the world's largest importer of scrap.

Scrap metal prices fall

The end result of this difficult situation is that the price of scrap falls even when the price of the primary material used to make steel, iron ore, rises.

Since late January, mainly due to a decline in exports from Brazil following the closure of several mines, the price of iron ore has risen by about 25 percent.

However, scrap prices fell 7 percent as demand in Turkey, where the steel industry relies heavily on scrap metal to be smelted in electric arc furnaces.

Turkey is in trouble

"The reason scrap prices are collapsing is simple, the world's largest importer, Turkey, is in big trouble," Macquarie said.

“Anti-dumping duties and a 50 percent US import tariff on Turkish steel cut off the country's main export market, while a falling currency, also fueled by a political dispute with the US, made foreign capital more expensive, stifling funding for domestic construction projects , the main steel used in this country. ”

According to Macquarie's estimates, total steel production in Turkey fell 15 percent in March, leading to a contraction in the scrap market, even as the price of iron ore rose sharply.

As we noted, when trade tensions first hit, Turkish steel mills were trying to export more steel, targeting markets that were still open to competition, the bank said.

“Total steel exports grew 21 percent year over year, despite the loss of the US market. Most of the material previously sent to the United States found its place in Europe.

“The remote markets of Southeast Asia, traditionally dominated by steelmakers in China, Japan and Korea, are also seeing an influx of competitively priced Turkish rebar.

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