The traditionally strong correlation between ferrous scrap and iron ore has been eroded by global trade upheavals and economic troubles in Turkey, the largest import market for steel scrap.
Previously, the relationship between ferrous scrap and iron ore prices often meant price movement in one would lead to a corresponding price change in the other – with market participants trading on this correlation.
Between 2014 and 2016, the relationship between iron ore CFR China and heavy melting 1/2 (80:20) steel scrap CFR Turkey – respectively the global benchmarks – was robust, showing a correlation of 87.3% for that time period.
Over 2017 and 2018, the correlation weakened considerably until it showed signs of a decoupling this year.
In fact, the correlation in 2019 to date was not only weak,