Owing to the spread of new Coronavirus infections, Japanese steel mills have been forced to reduce production, reflecting a sharp drop in demand for steel products caused by the suspension of automotive plant operations and the suspensions/delays to the work of major general contractors.
Crude steel production in Japan totalled 24.113 million tons in the first quarter of this year (-3.4% year on year), 6.575 million tons in April (-24%) and 5.916 million tons in May (-31.8%). If production continues to decline, there is a possibility that it will fall below 80 million tons for 2020 as a whole.
Demand for scrap has also fallen sharply while the economic downturn due to COVID-19 has also led to a slump in scrap generation. In May, there was also a break during the Golden Week holiday period when scrap generation volumes were noticeably sluggish, resulting in a shortage and reducing the flow to domestic electric arc furnace (EAF) mills. For this reason, EAF operators intensified their inquiries and steel scrap prices started to rise in May.
In the overseas market too, supply of steel scrap declined owing to a delay in urban scrap collections because of the strict Coronavirus countermeasures implemented in Western countries. As a result, inquiries for Japanese scrap - which is easy to handle in small lots and with short delivery times - became stronger and export prices continued to climb.
Owing to the shortage of domestic scrap and the increase in export prices, scrap prices in the Tokyo area jumped Yen 8000 per tonne (US$ 74.77) in the short period from the end of May to mid-June. However, the sense of reaching a ceiling spreads when the domestic price exceeds the export price, and it had fallen back by around Yen 5000 per tonne (US$ 46.73) by early July. At the time of writing, the market has halted its decline and has even tended to rise somewhat.
Japanese scrap exports in the January-May period amounted to 4 million tons (+37.6% year on year). By destination, South Korea still ranked first on 1.37 million tons (-23.6% year on year), followed by Vietnam on 1.3 million tons (+79.7%), Taiwan on 0.541 million tons (+181.2%), Bangladesh on 0.354 million tons (+537.4%) and Malaysia on 0.234 million tons (+280.7%). Clearly, countries other than South Korea are becoming increasingly important as export destinations for Japanese scrap.
Even in Japan, there has been an increase in the number of companies shipping in 15,000- 20,000 ton lots. Exports to distant countries such as Malaysia and Bangladesh are expected to continue to increase.
* In this report, Japanese steel scrap prices relate to the H-2 grade while the exchange rate used is Yen 107 to the US dollar.
Metz Corporation (JPN), Board Member of the BIR Ferrous Division