Fall in Japan’s steel demand drives scrap export surge

Japan's January-February scrap exports rose by 23pc year on year to 1,190,597t, customs data show. The added supply made Vietnam Japan's biggest buyer with record imports reported for January-February and partly offset price strength in US markets into Taiwan.

Japan's increase in scrap exports comes after steelmakers scaled back output in the second half of 2019 when pre-Olympic infrastructure demand began to wind down. More production cuts were planned by mills in 2019 and well into 2020 owing to sluggish domestic demand. Covid-19's impact on Japan peaked recently with the country declaring a national emergency to combat the virus, which will further weaken domestic steel demand.

As scrap demand from mills fell, scrap collectors started to see yards piling up fast. Scrap suppliers started lowering their offer prices to Asian countries to attract sales. This price move was a success, who managed to divert unwanted supply from the domestic market to overseas.

Producer Tokyo Steel lowered domestic scrap collection prices by 1,500 yen/t ($13.78/t) in January. And February prices were down by ¥3,500-4,000/t. Facing weak domestic demand, Tokyo Steel said in March that it would reduce domestic finished steel prices by ¥5,000-9,000/t.

Customs data is expected to show Japan's high level of scrap exports continued in March, but Japanese suppliers are warning buyers Covid-19 has been slowing the flow of scrap to yards, especially for better grades. Spot supplies from Japan might drop soon if measures to control the virus significantly reduce scrap collection. But the trend has been all up so far this year.

Vietnam became the biggest buyer of Japanese scrap in January-February, supplying 568,828t — up by 62pc from a year earlier. That was the fastest growth in actual tonnage terms.

The surge in Japanese scrap into Vietnam was thanks to a better outlook from mills on domestic demand as Vietnam was looking forward to huge development on infrastructures within the country. But coronavirus development within the country dampened outlook and forced smaller mills to cut production.

South Korea dropped to second place with 556,708t, which was down by 33pc compared with last year. South Korean mills started decreasing scrap imports in the fourth quarter of last year as projected outlook for the domestic market weakened and coronavirus made the situation worse. The fall in Japanese scrap supply was expected as mills scaled back buying and Korean mills were not active in the seaborne scrap market in January.

Taiwanese imports increased by 71pc year on year to 135,727t. Japanese scrap prices have been following US prices closely. Increased Japanese scrap purchases, together with regular buying on US scrap meant most Taiwanese mills have high scrap inventories. This explains why most mills were able to hold back on seaborne scrap procurement for 2-3 weeks in March when price direction was not clear because of the global impact of the coronavirus.

Containerised ferrous scrap HMS 1/2 80:20 fell by $72/t from 2 January to $198/t cfr Taiwan on 8 March.

Bangladesh saw a rise of 48.81pc in imports of Japanese scrap to 108,541t this year. The increase was thanks to strong domestic demand for finished steel products.

Terry Chuay