As in the export arena, Japan’s steel scrap market has not stopped falling. Although domestic steel mills’ purchasing prices had appeared to hit the bottom from the price hikes of iron ore (US$ 80s per tonne to US$ 120s per tonne) in July this year, they then continued to slide even lower. From its peak of Yen 35,000 per tonne (US$ 325.58) in March this year, the price has dropped by around 33% to Yen 23,500 (US$ 218.60) at the time of writing.
Construction activity for the 2020 Tokyo Olympics was almost completed by the beginning of this year, and now it is the off-season until the next construction phase relating to Japan’s urban redevelopment project goes full-scale.
Exports of steel products are also rapidly decreasing owing to the global economic slowdown caused by prolonged trade friction between the USA and China, pushing down prices of general-purpose products such as billets and hot rolled coils.
Given the situation described above, steel mills have been forced to cut production. In June, price leader Tokyo Steel reduced its sales price for July delivery for the first time in 33 months - by Yen 3000-5000 per tonne (US$ 27.91-46.51) - in order to improve the price for the second half of this year by stopping imported materials and restoring the supply-demand balance in the domestic market.
Japan’s crude steel production in January-June 2019 was 51.086 million tons, a 3.5% decrease from the same period last year; of this total, 38.265 million tons was produced by blast furnaces (-3.7% year on year) and 12.821 million tons (-3.1%) by electric furnaces.
The South Korean government had predicted that the domestic economic growth rate in 2019 would be 2.2%. However, given increasing concerns about US/China trade friction, the rate of export decline has accelerated such that the economic growth figure is now expected to be below 2%.
South Korea’s scrap import price is now down at US$ 235-240 per tonne CFR for deep-sea cargoes and Yen 27,000-28,000 per tonne CFR (US$ 251.16-260.46). These compare to ranges of, respectively, US$ 340-350 per tonne and Yen 35,000-36,000 per tonne CFR (US$ 325.58-334.88) in March this year.
In early August, the South Korean government announced that it would strengthen radioactivity testing for Japanese steel scrap but material flows have not been affected to date. At the end of the same month, Russia announced that it would introduce a quota system for exporting iron scrap from September to December this year. Attention turned to those South Korean mills who had been buying from Russia’s Far East ports but, despite their purchases on the spot market, this provided no boost to market prices for other exporting countries such as Japan.
Given the above circumstances, it is feared that steel demand and scrap prices in Asia might decline further if the Chinese economy continues to stagnate amid the ongoing trade clash with the USA.
* In this report, Japanese steel scrap prices relate to the H-2 grade while the exchange rate used is Yen 107.50 to the US dollar.
Hisatoshi Kojo
Metz Corporation (JPN), Board Member of the BIR Ferrous Division
Country
Japan and South Korea