Since past few months it is observed that demand for Japanese grade H2 scrap has lowered sharply, pushing price gap between H2 and high grade scrap which has widened upto JPY 8,000/MT which was earlier at JPY 5,000/MT in Jan’18.
Major EAF steelmakers in South Korea like Hyundai Steel and Dongkuk Steel have reduced purchasing volumes of heavy melting scrap sharply from Japan this year, especially like H1 and H2. Hyundai presented bids stable last week in which H2 fetches at JPY 33,000/MT, FoB which is lower than market levels while bids for high grades like HS and SB have bought up by raising prices considering domestic market situation in Japan.
What has happened in South Korean Steel Industry?
South Korean finish steel prices have remained unexpectedly high since past few months. After announcement of new policy from the President, construction activities have come down sharply over recession resulting in significant fall in finish steel demand in South Korea. Infrastructural projects in progress this year are considerably lower in numbers than the last year impacting tremendously to the steel industry. Although South Korea usually imports large volumes of Chinese steel products, demand for steel in China is dominating steadily, and supply to South Korea continues to decrease.
Commonly everyone assumes that whenever the demand and sale volumes decrease, prices also drop, but since the export price of Chinese steel products to South Korea has been high, South Korean steelmakers have remained away from importing steel materials and the number of orders for local steelmakers have been increased sharply. However, as domestic manufacturers have been rushing to raise their selling prices, penetration into the market is still too high.
What is the reason behind fall in H2 scrap demand in South Korea?
Apart from higher interest for higher grade scrap, the most critical reason why the purchasing policy of the modern steelmaking has changed is due to the inclusion of miscellaneous goods into H2, which could be a serious problem in the future.
South Korean steelmakers are shifting to purchase HMS scrap from Russia and the United States where the grade is not divided as much as in Japan, and the isolation for lower grade scrap is predictable owing to mixing of miscellaneous goods which is inevitable.
How far will the prices remain supportive ?
Inspections for low grade scrap like H2 against mixing miscellaneous goods have become extremely strict in Japan, since exports of miscellaneous goods to China have narrowed down. Also it’s very hard to return shipping vessels back and return the materials on trucks.
Presently delivery time has been lengthened a lot, inspections are done at scrapyard first rather than going straight into the truck box and even before dumping down to another yard dealers are forced to inspect scrap ahead of delivery, resulting in extended time of delivery.
Although Japanese scrap market is turning strong currently in the western Japan and Kanto region along with demand from few small importing countries, it is due to heavy rains and logistic issues but we cannot expect a big rise in the upcoming summer, and it is a fact that the demand for H2 will narrow down further. Obviously buyers will purchase scrap with strong fundamentals.
Why miscellaneous goods should not be mixed with scrap?
Miscellaneous goods include plenty of copper content such as copper wire besides plastics. If this copper content is contained more than a certain amount in steelmaking, the mechanical properties of the product cannot be ensured.
Moreover, once copper content is mixed with steel there is no established technique for removal of it like dephosphorization equipment. In other words, such steel containing higher copper content, can be considered as the result of many recycling and it becomes fatal to use. That is, it makes the steel material fragile, which leads to being unable to deliver to the world as a product.
– Input from Iru Miru
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