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Ferrous scrap: North American & global markets update 2018 Canadian Association of Recycling Industries (CARI) Convention Niagara Falls, ON Xavier McClafferty 9 June 2018

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Copyright © 2018 Argus Media group. All rights reserved.

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•  About Argus

•  Seaborne ferrous trade

•  Domestic ferrous trade

•  Concluding thoughts

•  Questions and answers

Agenda

•  One of the world’s leading PRAs, Argus is a team of more than 800 staff members in 21 global offices

•  Publishing more than 11,000 daily spot and forward price assessments, plus market intelligence for world commodities markets

•  Coverage includes: ◦  Energy ◦  Fertilizers ◦  Petrochemicals ◦  Metals

•  Services ◦  Price reporting and indexation ◦  Consulting ◦  Conferences

•  Indexation examples ◦  US crude oil ◦  US and European refined products ◦  US and European natural gas ◦  NGLs ◦  US and European environmental markets

The Argus view


Argus’ North American ferrous coverage

Seattle-Portland (Export)

Los Angeles (Export)

San Francisco-Oakland (Export)

Houston (Export, Dealer)

Dallas (Consumer)

Houston-San Antonio (Consumer)

Carolinas (Consumer)

Birmingham (Consumer)

Toronto-Hamilton (Consumer)

Montreal (Consumer)

Boston (Export)

Philadelphia (Export, Consumer)

New York (Export) Cleveland,

Pittsburgh (Consumer)

Buffalo (Dealer)

Main Grades Assessed

•  #1 busheling •  Shredded •  Shredder feed (export yards) •  #1 HMS •  5’ P&S •  Machine shop turnings

Monthly: delivered consumer buying prices, with 5-7 years of price history in most markets. Weekly: bulk and containerized assessments, including freight, as well as export yard buying prices, with two years of price history.

NE Arkansas (Consumer)

Albany (Export)

Detroit (Consumer) Chicago

(Consumer)

Weekly assessment market

Monthly assessment market New Orleans

(Pig Iron Import)

St. Louis (Dealer)

Quad Cities (Consumer)

Denver (Dealer)


Scrap consumption as a share of steel output in 2017 Argus RGB color pale0e (Delete when final)

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China Scrap Consumption: 148mn t

Shredders: ~200 Scrap Consumed/Crude Output: 18%

Crude Steel Output: 832mn t EAF: 9% BOF: 91%

World Scrap Consumption: 600mn t

Scrap Consumed/Crude Output: 36% (Purchased Scrap Share: 68%)

Crude Steel Output: 1.7bn t EAF: 28% BOF: 72%

Europe Scrap Consumption: 93mn t

Scrap Consumed/Crude Output: 55% Crude Steel Output: 168mn t

EAF: 60% BOF: 40%

Global external scrap trade:

99mn t

Source: Bureau of International Recycling (BIR), Argus estimates

6% of steel output 11% of scrap consumption

Canada Scrap Consumption: ~7mn

Shredders: 28 Scrap Consumed/Crude Output: 48%


US Scrap Consumption: 59mn t

Shredders: 316 Scrap Consumed/Crude Output: 72%



Events

Analysis: Seaborne ferrous scrap

2017-2018: US, Turkey drive Canada’s exports higher Argus RGB color pale0e (Delete when final)

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Note: “NM” = not meaningful.

2017 2016 % Change

2,550,890 2,080,375 23% 570,000 315,000 81% 77,824 80,185 (3%)

173,167 -- NM 62,672 78,045 (20%)

265,991 198,847 34% 3,700,544 2,752,452 34%


Top 5 Canadian export destinations (t)

1Q 2018 1Q 2017 % Change

US 638,761 582,826 10% Turkey 135,967 -- NM Taiwan 29,383 16,961 73% Mexico 26,250 31,500 (17%) India 22,319 10,293 117% All Others 44,749 40,103 12% TOTAL 897,429 681,683 32%

Ontario Exports totaled 1.6mn t

in 2017, up from 1.4mn t in 2016 and accounting

for 45%of exports. Quebec/New Brunswick Exports totaled 978k t in 2017, up from 371k t and

accounting for 26% of Canadian exports.

British Columbia Exports totaled 772k t

in 2017, up from 645k t and accounting for 21%

of Canadian exports.

Source: Statistics Canada (Government of Canada), Argus estimates

Turkey also drives US exports Argus RGB color pale0e (Delete when final)

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YTD US ferrous scrap exports (metric tonnes)

1Q 2018 1Q 2017 % Change

Turkey 979,468 542,727 80% Mexico 457,058 427,200 7% Taiwan 409,037 364,653 12% Vietnam 239,816 167,854 43% India 237,927 65,205 265% China 224,559 235,349 (5%) Thailand 155,846 135,982 15% Canada 148,036 164,238 (10%) Kuwait 133,495 94,282 42% Peru 120,556 158,059 (24%) Indonesia 119,374 8,097 NM Malaysia 118,606 5,480 NM Pakistan 107,596 67,891 58% South Korea 100,295 152,588 (34%) Bangladesh 72,655 121,878 (40%) Japan 70,914 4,110 NM Egypt 70,253 21 NM Ecuador 64,536 57,219 13% All Others 77,878 148,581 (48%) Total 3,907,905 2,921,414 34%


2017 2016 % Change

3,631,140 3,123,264 16% 1,544,869 1,481,941 4% 1,305,656 1,237,016 6%

708,721 378,125 87% 638,617 1,013,430 (37%) 696,155 433,967 60% 535,419 425,313 26% 609,802 385,197 58% 426,332 353,681 21% 444,086 393,705 13% 85,341 59,580 43%

192,371 26,999 613% 626,924 379,067 65% 525,238 829,414 (37%) 618,929 293,304 111% 73,218 35,806 104%

399,694 121,903 228% 150,524 40,023 276% 595,992 335,287 %

13,809,028 11,347,022 22%


Source: US Census Bureau

But the Turkish landscape has shifted Argus RGB color pale0e (Delete when final)

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-

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Imports from the US Total Turkish Imports Turkish Steel Production

Imports from the US represented 18% of Turkish scrap in 2017,

down from 28% in 2012

Turkish scrap imports as a share of crude steel output in 2012: 62% Turkish scrap imports as

a share of crude steel output in 2017: 56%


A tale of two coasts in the US



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West coast exports in 1Q

2018 increased by 21% from the

prior year, accounting for 39% of total shipments.

Gulf coast exports in 1Q 2018 increased by 120%

from the prior-year, accounting for 14% of

total shipments.

East coast exports in 1Q

2018 increased by 35% from the


Northern border exports in 1Q 2018 to Canada fell by 10% from the


USEC: It’s all about Turkey



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Bulk, containerized and export yard buying prices, #1 HMS 80:20 ($/t)

$100

$150

$200

$250

$300

$350

$400

Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun

Bulk Export (cfr Turkey) Bulk Export (fob NY)

Containerized Export (fas NY) NY Export Yard

$100

$200

$300

$400

Jan Feb Mar Apr

Montreal NY Export Yard

Montreal Shredder Competition Drives Shredder Feed Higher

(CAD/NT)

USWC: It’s about everyone



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Bulk, containerized and export yard buying prices, #1 HMS ($/t)

$100

$150

$200

$250

$300

$350

$400

Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun

Containerized Export (cfr Taiwan) Containerized Export (fas LA)

Bulk Export (fob LA) Los Angeles Export Yard

2017: Scrap, metallics imports surge



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Scrap 2017 2016 % Change Canada 2,550,643 2,079,310 23% UK 508,878 354,060 44% Netherlands 211,558 180,064 17% Sweden 207,203 259,183 (20%) Mexico 151,318 87,425 73% Japan 69,169 343 NM Spain 16,326 -‐-‐ NM All Others 15,712 35,002 (55%) TOTAL 3,730,807 2,995,387 25%

Pig Iron 2017 2016 % Change Russia 2,784,226 2,222,825 25% Ukraine 1,143,074 684,850 67% Brazil 921,031 704,969 31% South Africa 134,346 95,504 41% India 72,000 3 NM Canada 40,469 45,528 (11%) ArgenTna 24,559 -‐-‐ NM All Others 7,683 112,343 (93%) TOTAL 5,127,388 3,866,022 33%


DRI/HBI 2017 2016 % Change Trinidad/Tobago 1,562,256 1,467,522 6% Russia 115,500 96,540 20% Venezuela 64,987 -‐-‐ NM Ukraine 23,752 14,014 69% Brazil 22,125 19,704 12% Canada -‐-‐ 324 NM TOTAL 1,788,620 1,598,104 12%

Through the first quarter of 2018 compared with a year earlier: •  Scrap imports rose by 10% to

638,599t •  Pig iron imports rose by 22% to

1.3mn t •  DRI imports fell by 7pc to 429,912t

on fewer shipments from Trinidad


Events

Analysis: US-Canadian domestic trading

US-Canadian ferrous scrap trading



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Pembina, ND 23,000t/month in Q1 2018

Major Canadian import points from

the US

Major US import points from Canada

Detroit, MI 12,000t/month in Q1 2018

Buffalo, NY 7,000t/month in Q1 2018

TOTAL 49,000t/month in Q1 2018

Detroit, MI 95,000t/month in Q1 2018

Seattle, WA 66,000t/month in Q1 2018

Buffalo, NY 26,000t/month in Q1 2018

Pembina, ND 7,000t/month in Q1 2018

TOTAL 213,000t/month in Q1 2018

Import/Export Routes

US Import-Only Routes

Canadian steel exports to the US in 2017: 5.7mn t

US steel exports to Canada in 2017: 4.7mn t

First quarter 2018: A quick synopsis



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US national index, del consumer (USD/gross ton)

69%

70%

71%

72%

73%

74%

75%

76%

77%

78%

79%

$-

$50

$100

$150

$200

$250

$300

$350

$400

$450

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun

Shredded Scrap #1 HMS #1 Busheling Capacity Utilization

2Q 2017

2Q 2018

+30% shred/cuts

+12% primes

Hamilton-Toronto vs. Detroit, in CAD/NT



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Shredded #1 Busheling

5ft P&S #1 HMS

$200

$250

$300

$350

$400

$450

Jan Mar May Jul Sep Nov Jan Mar May

Detroit Toronto-Hamilton

$200

$300

$400

$500



$200

$250

$300

$350

$400

$450


Detroit Toronto-Hamilton $200

$250

$300

$350

$400

$450



Prime’s premium over shredded normalizes US national composite price spread, #1 busheling vs shred del

consumer ($/gt)


$9

$28

$51

$69 $70

$78 $77 $78 $80

$68

$57

$50

$43 $42

$17 $13

$23

$31

$-

$10

$20

$30

$40

$50

$60

$70

$80

$90


A perfect storm of supply and demand factors drove prime scrap higher in 2017, including:

•  Strong underlying flat-roll mill demand •  Big River Steel’s entry in early 2017 •  Outages at Nucor’s US DRI plant •  Lower overall prime scrap generation •  Pig iron supply disruptions from Ukraine,

Brazil

Finished steel’s premium over scrap soars

US hot-rolled coil vs. #1 busheling scrap ($/gt)


$-

$200

$400

$600

$800

$1,000

$1,200


HRC #1 Busheling

June 2017: $318/gt

June 2018: $596/gt

1H 2018: Summary of trading themes

•  Strong finished steel demand and supportive US trade policy boosting US mill utilization rates and driving scrap demand higher, making the US one of the hottest markets in the world for shredded, busheling

•  Runaway finished steel prices widening the spread between finished steel and scrap in the US

•  Sluggish post-232 finished steel sales in Turkey weighing on US obsolete grades

•  Harsh winter conditions disrupting scrap generation, with high water on the Mississippi river and rail delays across north America limiting flows

•  Narrowing spread between #1 busheling and shredded boosting demand for primes


Hurricane impact update


Hurricane Harvey Hurricane Irma

Hurricane Maria Limited Schnitzer Steel’s Puerto Rico shredder and export terminal.

Ferrous scrap exports from the island dropped to 7k metric tonnes in 4Q 2017 from 25k in the same period a year earlier.

Export activity recovered in 2018, with 55k t exported through February compared with 28k t in the prior-year period.

Mexico is the primary export destination from the island. Scrap also shipped to Asia Pacific container markets.

Dealers surveyed reported negligible market impact (<10k gt of ferrous scrap generated).

Salvage auction company Copart processed an additional 7,500 vehicles as a result of the storm, compared to 150,000 vehicles in Florida annually.

CMC’s Jacksonville shredder offline in the week following the storm without power.

Scrap vehicles generated Insured: 208,137 Uninsured: 49,875

258,012

Incremental Fe Frag Generated (gt) 281,015

33.5mn Incremental Zorba generated (lb)

Texas homes impacted 303,712 Damaged: 286,769

Destroyed: 16,943

Scrap vehicles: 265,384 Residential Scrap: 15,630

Residential Scrap: 1.1mn Scrap vehicles: 32.4mn

Surplus shreddable scrap began impacting the Texas market immediately following the storm, generating 281,015gt of shred through the first half of 2018. This is more than six times Houston’s average monthly shred output of around 40,000gt and nearly three times monthly demand for shred from Texas mills of 100,000gt.


•  US trade actions and the subsequent global response have roiled steel and scrap markets:

◦  boosting US domestic capacity utilization as steel imports drop, generating robust demand for scrap that is expected to last through 2018

◦  driving US steel and scrap price increases to outpace global steel prices, impacting demand for US scrap from Turkey and other markets

•  Trade disputes are not expected to be resolved quickly and uncertainty is expected to remain disruptive of global markets

Concluding thoughts

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Xavier McClafferty Argus Metal Prices Email: Phone: Office: Web:

[email protected] 610-742-6579 Americas, Houston metals.argusmedia.com

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