Japanese ferrous scrap prices have hit a 13-month high amid short supply, according to Davis Index price data analysis. This, despite global ferrous scrap prices showing signs of softening on slow demand and the Turkish currency lira fluctuating between TRY7.82-7.72 levels against the $1, from around TRY7.5 in mid-September, impacting bulk imports.
Japanese ferrous scrap prices have decoupled from the global trend and risen on the back of domestic demand recovery. The possibility of China resuming ferrous scrap imports has also added to the optimism. The Chinese government has indicated that restrictions on steel scrap imports may be relaxed.
Scrap prices in Japan have largely been on an uptrend since mid-July amid recovering demand in both, export and domestic markets. Prices rose by around 20pc in the export market and by 25pc in the domestic market. In few recent deals, South Korean mills have booked #2 HMS at JPY26,500-27,000/mt ($251-256/mt) fob Japan. Demand from Vietnam and Taiwan is also picking up and may remain strong after the Golden Week holidays conclude.
A positive outlook
Supply of #2 HMS scrap remains weak as demolition activities are hit by COVID-19. Thus, in Q4 2020, Japanese steel scrap prices are less likely to drop. Once China resumes imports, sellers could increase exports, which could impact domestic supply. Steelmakers in Japan buying domestic scrap at a lower price could have to pay more.
Japanese scrap could fetch at least $100/mt more in China market compared to the domestic market. A trader in Japan believes it could be challenging to pass on the rise to the domestic end-user, which could affect demand.
China’s ferrous scrap imports from Japan fell to around 40,000mt in 2019 from 1.81mn mt in 2017. The Chinese government had imposed restrictions on solid waste imports in 2018, limiting the inflow of ferrous and non-ferrous metallic scrap. A quota system in the country governed this inflow. In Jan-Aug 2020, China imported less than just 10,000mt.
Japan Iron and Steel Recycling Institute believes Beijing could now relax restrictions on ferrous scrap imports amid the infrastructure investment boom. With rising crude steel production, Chinese scrap consumption could also increase. ($1=JPY105.66)