Presentation on TSI's Turkish scrap benchmark. Who we are, how it is produced, comparing EAF/BOF input costs.

1. TURKISH SCRAP BENCHMARK
www.thesteelindex.com
Stefan Swanepoel
TSI Scrap Analyst
London
May, 2016

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3. Introduction
TSI is a specialist price information service
• Impartial organisation focused on compiling prices for ferrous metal products
• Founded in in 2006 as subsidiary of the Steel Business Briefing (SBB) Group, acquired by
Platts in July 2011
• Continues to operate under TSI brand as a separate unit within Platts, part of S&P Global
• Data-driven methodology using transaction data to calculate volume-weighted price
indices
• TSI “Data Providers” submit spot transaction data to TSI under confidentiality agreement;
physical market participants only (over 600 registered today)
• Submission direct to TSI database through secure on-line channel
• Data normalised and “cleaned”, minimising opportunities for manipulation/data bias
• Volume-weighted averages calculated for the day or week based on actual spot market
transaction data

4. Introduction
TSI pioneered a methodology which uses actual
spot transaction data to produce price indexes
for use by the ferrous market
Scrap indices are used as the basis of
settlement for futures and swaps contracts on
LME, LCH.Clearnet, CME Group and Borsa
Istanbul
European HRC and plate steel indices
referenced in supply contracts. ASEAN steel
benchmark referenced in floating priced deals
62% iron ore index is used by numerous
exchanges to settle the overwhelming majority
of all global iron ore derivatives trade
Our FOB Australia Premium coking coal price is
entered into the majority of all index-linked
supply contracts between producers and
customers
Iron Ore
Scrap
Steel Coking
Coal

5. Key Principles
To maximise industry participation and the accuracy of data submitted
To minimise opportunities for manipulation or subjectivity in the compilation of
each index
To apply a consistent approach: TSI uses the same approach for compiling all its
iron ore, steel, scrap and coking coal reference prices worldwide:
• legal agreements with relevant Data Providers active in the physical market
• secure confidential on-line data collection of actual transactions
• prices normalised to reference product specifications
• data ‘cleaned’ with outliers excluded
• volume-weighted averages calculated and published

6. Methodology
TSI “Data Providers” submit spot
transaction data to TSI under
confidentiality agreement
Physical market participants only (over
600 registered)
Representatives from all relevant points of
the supply chain, buy and sell sides
Submission direct to TSI database
through secure on-line channel
Data normalised and “cleaned” before
volume-weighted averages calculated for
the day or week
Legal
Agreement
Submits price data
through a secure
online system
Transaction
data sample
Prices
normalised1
Outliers &
high/low
excluded
2 Buy/Sell
balance3
Volume–weighted
averages calculated4 Final
data set
TSI Prices Published

7. Methodology
Trades normalising to MORE and LESS than one standard
deviation from the mean are excluded. So too are the unique
lowest and highest prices
Data set included in
index calculation
proceeds to volume-
weighting stage.
Data submissions exhibiting inexplicable
trends or inconsistencies are also
excluded
- - LP
+ +
+ 1 s.d.
- 1 s.d.
Data Submissions
HP

8. TSI Daily Turkish Scrap Benchmark Price
150
170
190
210
230
250
270
290
310
330
350
Jan-15 Feb-15 Mar-15 Apr-15 May-15 Jun-15 Jul-15 Aug-15 Sep-15 Oct-15 Nov-15 Dec-15 Jan-16 Feb-16 Mar-16 Apr-16 May-16
US$/t
Turkish HMS 1&2 80:20 Daily Index
Daily Normalised Price Submissions

9. Why Turkey?
Turkey is the single largest importer of ferrous scrap and the region acts as a genesis for
pricing
Steel production via the secondary route (EAF-based), using scrap as a raw material
feedstock
Turkish scrap import prices influence other key scrap trading regions such as the domestic
US Midwest, Taiwanese and Indian containerized imports
0
2
4
6
8
10
12
Ukraine Russia UK USA Rest of the world
MillionMT
2013 2014 2015
Turkish Scrap Imports

10. Key Global Scrap Exports 2015 (million tonnes)
Imports from diversified sources around the world but largely originate from US East Coast,
Europe/Scandinavia (deep-sea) and Baltic regions (short-sea)
1.09
1.15
0.68
1.62
0.99
1.43
1.10
8.08
3.97

11. US Scrap Exports
0
1
2
3
4
5
6
7
India Mexico South Korea Taiwan Turkey Rest of the World
MillionMT
2013 2014 2015
The US is the single largest exporter in the world. Three inter-related scrap regions…Midwest (domestic),
East Coast (exports to Turkey) and West Coast (exports to Asia)
Purchasing patterns in Turkey (as a bulk buyer) have a knock-on impact on scrap pricing in both the
Midwest and containerised markets such as Taiwan and India

12. Virgin Iron versus Bulk Scrap
1
1.5
2
2.5
3
3.5
4
170
220
270
320
370
420
470
520
570
US$/tonne
Scrap HMS #1&2 80:20 Ratio (RHS)
Despite recent price falls, scrap is more than three times the cost of iron ore per unit of Fe
Whilst Turkey’s EAF steelmakers cannot directly switch between scrap and iron ore, it may become more
cost effective for them to re-roll semi-finished steel (billet) into rebar than melt scrap (i.e. the
displacement effect)

13. Index Users
Physical market users include steel mills, miners, scrap yards, traders, distributors, service
centres, steel processors and steel consumers
Physical market players use TSI prices in a variety of ways, including:
- for reference in price negotiations
- to track performance against the market
- for benchmarking
- as escalators and in clauses within supply/purchase contracts, triggering a price
adjustment or renegotiation if the index moves by more than a defined amount
- to identify opportunities to take trading positions
- in index-linked pricing arrangements
- for hedging physical price exposure (locking in future revenues, costs or margins)
- for speculation (traders)
Financial market users include brokers, banks and exchanges

14. Indexing and hedging
Commodity buying and selling is a highly volatile practice and therefore requires risk
management
To manage price risk, participants can hedge prices through exchange traded derivatives
such as futures and swaps
Future contracts are standardized (i.e. each contract is the same quantity and date for
everyone) and trade on exchanges
Clearing houses guarantee the trades and also ensure that every contract is honored
It can be seen as a form of insurance against adverse moves in the market

15. Indexing and Hedging – Direct Indexing
Trading firms view logistics, storage and other transformations as their core businesses, and so do not
have an advantage in bearing price risk
Secondary benefits therefore arise from price indexing – as having secured a price acceptable to both
parties, focus can shift to other areas of the customer-client relationship
Price
Quality
JIT delivery
Credit Lines
Single Invoicing Point
Consistency of Material
Spot
Trade
Service
Quality
JIT delivery
Credit Lines
Single Invoicing Point
Consistency of Material
Indexed
Trade

16. Indexing and Hedging – Dispelling the Myths!
Indexing does not commoditize products as it allows for preferences to be built into the
index price.
If material produced is considered a value-added product then it can be sold at a premium
fixed value or a percentage to the index value.
If a specific origin is viewed as ‘premium’ origin, it can be sold at index ‘+’ a fixed value, or a
percentage value. Buyers may consider certain origins to be almost certain to reliably
deliver on time, for example.
Using futures/derivatives contracts as a price risk management tool is not speculative
measure!
On the contrary, it carries a myriad of benefits to users throughout the steel supply chain. It
allows for forward planning, fixed price certainty and (certainty) of cash flows as well as an
efficient allocation of capital resources.

17. Indexing and hedging
Indexing does not commoditize products as it allows for preferences to be built into the
index price.
If a specific material is viewed as ‘premium’ material, it can be sold at index ‘+’ a fixed
value, or a percentage value. Buyers may consider certain mills to produce a physical
premium product, for example.
If a specific origin is viewed as ‘premium’ origin, it can be sold at index ‘+’ a fixed value, or a
percentage value. Buyers may consider certain origins to be almost certain to reliably
deliver on time, for example.
If buyers (e.g. pipe and tube) buy in bigger volumes, that advantage can be built into the
price e.g. index ‘-’ an agreed value. Discounts or premiums can be built in to the index price
for credit lines, or any number of commercial terms buyers or sellers value.

18. LME Scrap Futures
Launched November 2015 alongside LME’s Steel
Rebar contract
Cash-settled futures contract with a 12-month
forward curve and a lot size of 10 tonnes
~40,000 tonnes (4,000 lots) traded since launch
“Based on the development so far, Stemcor feel these launches have been the most successful in the
commodities space since iron ore swaps.”
Phillip Price, Head of Market Risk Management and Derivatives Trading at Stemcor
First voice-brokered trade executed in May by INTL FCStone Ltd on behalf of
Stemcor – indicating contracts are being accepted as risk management tools
for the steel industry

19. Ferrous Scrap Futures
0
500
1000
1500
2000
2500
3000
3500
4000
4500
5000
Nov-15 Dec-15 Jan-16 Feb-16 Mar-16 Apr-16 May-16
CumulativeLotsCleared

20. LME Forward Curve
100
150
200
250
300
350
May-15 Aug-15 Nov-15 Feb-16 May-16 Aug-16 Nov-16 Feb-17 May-17
US$/tonne
Turkish Imports HMS 1&2 80:20, CFR Turkish Port
US Domestic Shredded, Delivered Mill
Indian Imports, Shredded, CFR Port
Taiwan imports HMS 1&2 80:20, CFR Port
Forward Curve

21. Market Update - Example
Turkish Scrap Update – Week beginning 23 May, 2016
Trading activity is yet to resume in the Turkish scrap market, however, latest bid and offers saw TSI’s HMS #1&2 80:20 scrap CFR Turkey port
benchmark end today at US$283/tonne. Steel prices in Asia, in particular, the price of Chinese-origin billet, continues to be the main concern for scrap
market participants as further price deviations between billet and scrap is expected to reduce appetite for the raw material.
Historically Taiwanese containerized import and Turkish bulk import scrap prices have moved in tandem, with an R2 value of 0.96 confirming their
close relationship. Furthermore, the Turkish scrap price has consistently traded at a premium of US$20-40/t between August 2012-14 and in the
US$20-60/t range since then. The recent substantial price decline in the Taiwanese imports market has in turn created an unprecedented price
differential between the two, with the Turkish price currently trading at a US$109/t premium. The assumption is that this significant differential will
soon correct back to its historical range, but whether Taiwanese import prices recover or Turkish scrap prices plummet, remains to be seen.
Players in the market were uncertain as to where Turkish prices will level out, however, it is believed that stocks will soon run out at mills and hence
demand uncertainty will subside as buying resumes.

22. Contact
To subscriber to bi-weekly market updates follow up with us directly on the details below
Stefan Swanepoel
London
TSI Scrap Analyst
Office: +44-20-7176-6533
Email: stefan.swanepoel@spglobal.com