Highlights of the Week

Global economy is going through a period of extreme uncertainty and supply shocks. We have the energy crisis, the food crisis, the supply chain crisis and the war, all of which have profound implications for the economic performance of this interconnected world and the prices of all commodities worldwide. The subcontinent ship recycling destinations are struggling with foreign exchange crisis, slowdown in economy and subdued steel demand from end-user industries, which is leading to gloomy sentiments among the end buyers. However, the offer price levels remain stable as strong ocean freight rates ensure scarcity of tonnage in the recycling market. The tanker segment, which has been a major source of tonnage in the recycling market post pandemic is expected to remain tight due to a major reshuffling of trade routes once the EU-wide ban on Russian oil imports comes into effect from December onwards.

Iron ore dropped below USD 100/MT for the first time in over five weeks on signs that the crisis in China’s steel industry is worsening. Output in China’s vast steel sector is already running well behind last year’s pace as the industry reels from a property crisis that shows no signs of abating. Stimulus measures announced by the government have yet to arrest the decline amid a slowing economy.

South Korea, southern parts of Japan and few parts of China are bracing for the imminent destruction as super typhoon Hinnamnor barrels northwards through the East China sea this weekend. Ships in the region are currently adjusting to the typhoon's movements, with many vessels taking detours.

The UK government has agreed with the Trade Remedies Authority's recommendation to extend anti-dumping measures for five further years on import of cold rolled flat steel from China and Russia based on the conclusion that cold rolled flat steel from these countries would likely be dump edif the measure were to be removed, causing injury to UK producers.

Steel prices continue to decline

Steel prices continue edging down in key markets towards the end of the week on 580 570 harder bargaining by end-buyers as the supply has improved in the domesticmarket. However, the end buyers from Alang are maintaining their offer pricelevels due to the pertaining scarcity of units available in the recycling marketresulting in competitive bidding among recyclers to secure tonnage.

The Indian Rupee recovered sharply mid week after hitting a new all-time low by breaching the key psychological level of INR 80/USD. Amid global turmoil and weakness in major Asian peers like the Japanese Yen and the Chinese Yuan, it willbe interesting to see to what extent the RBI succeeds in protecting the USD/INR pair.

Prices of coking coal, a key ingredient in making steel, are rebounding and will likely continue to squeeze margins of steel companies for rest of the year. On a daily trend basis, prices have gone up by over USD 80/MT for the month of August 2022 leading to a cost increase of over USD 60/MT in steel making through the blast furnace route.

Offer prices remain stable

The offer prices from the end buyers of Chattogram have seen no furtherimprovements this week due to gloomy sentiments in the domestic steelmarket. The recyclers are looking to acquire small-sized tonnages to keep theyards functional and prepare for the expected pick in steel demand from theconstruction sector in the upcoming winter months.

With dwindling foreign currency reserves, rising citizen protests against fuelprices, long power cuts, and an ongoing economic crisis, Bangladesh maysoon need to buy Russian oil, however, the government is concerned that itswestern allies may not be happy with any possible arrangement betweenDhaka and Moscow and this may negatively impact the bailout plea it hasmade to the IMF.

‍

Floods wreak havoc across the country

Pakistan continues to battle flash floods caused due to incessant rainfall thismonsoon season. The water rapids have caused massive destructionreportedly leaving one third of Pakistan under water as of now. The UnitedNations has now appealed for USD 160 Million aid for flood hit Pakistan ashundreds of homes, businesses, crops, and infrastructure have beendestroyed and the nation is awash in suffering.

Many steel mills across the country have either slowed down their operationswhile few have temporarily closed down due to the extreme slow pace ofdemand in the domestic market.

The pressure on Pakistani rupee continued this week despite the comfortderived by the recent IMF tranche as well as investments confirmed by SaudiArabia and Qatar as the currency is under severe pressure due to drying up offoreign exchange reserves and declining foreign direct investments.

Slight improvement in Imported Scrap offers

One Cruise ship of about 20,000 LWT has arrived in Aliaga this week.

Imported scrap offers rose slightly this week owing to scarcity of materialand high offers gaining acceptance. Buyers and steel mills were mostly outof the market for two weeks due to low finished steel trades in thedomestic and overseas markets.

With effects from September 2, the Central Bank of Turkey has raised theminimum percentage of foreign exchange deposits that banks need toconvert to Turkish Liras, while hiking the forex required reserve ratios forthose that remain below the limit.

Turkey's GDP rose an annual 7.6% in the second quarter despite inflationat a 24-year high, driven by s surge in consumption. The monetary stimulusas well as the booming tourism has heated up demand and spending inthe country. However, tighter global financial conditions and loomingrecession in the eurozone poses an imminent threat to the export market.