London Metal Exchange launches India scrap futures

Global ferrous scrap prices, including in India, remain comparatively weak to iron ore, as the London Metal Exchange launches India scrap futures, allowing increased risk management with iron ore, scrap, coking coal and steel futures available through multiple exchanges.

Scrap to iron ore ratios have remained weak, following sustained high iron ore demand in China throughout the coronavirus pandemic and record high prices in May.

While scrap import demand in India has recovered from last year, prices of Platts TSI Shredded Scrap CFR Nhava Sheva and 58% Fe iron ore fines see ratios remaining close to the all-time low in October 2020 of 1.82 scrap to iron ore, according to S&P Global Platts analysis July 19.

Major scrap importer India relies more on domestic iron ore resources, which help the nation to minimize iron ore imports. India competes for scrap imports with regional buyers such as Pakistan, buying from the Persian Gulf, the US and other markets.

Platts assessment is based on containerized shredded ferrous scrap at the port of Nhava Sheva, near Mumbai, complying with ISRI 211 classification or equivalent, specifying homogeneous and magnetically separated iron and steel scrap originating from automobiles.

The comparative low prices for scrap to iron ore — at high outright prices for both — compares to a six-to-eight price multiple for shredded scrap CFR Nhava Sheva over 58%-Fe iron ore fines during 2017, when iron ore was depressed.

While Turkey typically imports deep sea scrap cargoes, India’s scrap prices have become a reference, along with those traded in China, Taiwan, South Korea and Japan. The LME’s Steel Scrap CFR India cash-settled futures contract, which started trading July 17, settles on Platts TSI Shredded Scrap CFR Nhava Sheva, and is traded on 10 mt lots.

India was the second-largest steel producer in 2020, after China. India produced 100.3 million tonnesof crude steel, a tenth of China’s 1.06 billion tonnes, and India turned into a net steel exporter after consumption fell during the pandemic. Over half of India’s steel is from the electric arc furnace and induction furnaces route, with 45.5% via the basic oxygen furnace (BOF) route in 2020, according to World Steel Association data. Flat steel in India is typically produced by blast furnaces using BOFs, while some investments have gone into scrap-fed Electric Arc Furnace (EAF) flat mills.

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