According to recent conversations with market participants, SteelMint learned that since last couple of days Japanese scrap exporters have turned active in South Asian markets as demand for low-grade scrap from South Korean mills has come down. A bulk offer for around 22,000 MT of mix grade scrap was heard from Japanese mill to Asian markets. Japanese scrap prices have weakened 5 months low after observing the result of ‘Kanto Tetsugen’ monthly scrap tender for Apr’18.
Amid comparatively lower prices for Japanese scrap against USA materials, sources pointed that Japan may observe good response from South Asian markets like Bangladesh and India. Presently H2 scrap assessed at JPY 33,000/MT (USD 308), FoB Japan while offers for UAE origin HMS 1 assessed at USD 380-385/MT, CFR India and offers from Brazil origin HMS is around USD 385/MT, CFR Bangladesh.
Why are Japanese scrap exporters getting active in South Asian markets?
South Korea which is the largest importer of Japanese scrap and accounts for almost 50% share in total Japanese scrap exports, has been witnessing slowdown in scrap imports since last one month.
1. Hyundai Steel suspends bid for low-grade Japanese scrap for a month – Amid sharply rising steel inventories, South Korean leading EAF steelmaker Hyundai Steel has suspended the bid for Japanese scrap for this week. According to sources, over a large number of contracts already in balance with the company and continuing trend of shipbuilding, Hyundai could have stopped scrap purchases. Hyundai Steel’s bids are expected to remain suspended for one month’s time. Amid slowdown in activities during upcoming golden week holidays, Hyundai likely to suspend its bids and may resume bids in the mid-May ’18. Hyundai Steel is the highest buyer of Japanese scrap and imports monthly around 200,000-250,000 MT.
2. Weakening rebar demand in South Korea – According to Iru Miru report, South Korea mainly imports low-grade scrap H1, H2 and H3 which is consumed as the main raw material in EAF based manufacturing of rebar in the country. Although Korean rebar demand last year was about 11.5 MnT it is seemed to drop significantly to 9.5 MnT this year amid reducing construction activities. The stagnation of the South Korean economy resulting in reducing real estate prices has lowered the demand for rebar. Weakening rebar demand in South Korea has resulted in reduced rebar production from major mills like – Hyundai Steel, Dongkuk Steel, Daehan Steel etc. This situation is leading to falling demand for low-grade scrap and prices in South Korea.
However, the demand of high-grade scrap (like HS, Shredded and Bushelling) remains strong amid increased demand for special steel in the country.
3. Declining domestic scrap prices in South Korea – Easier and cheaper availability of low and medium grade scrap like H2, H1/2 in domestic market kept South Korean leading steelmakers away from booking high volumes of Japanese scrap in last few weeks. Also, domestic scrap prices in South Korea have come down significantly. China which is generally 2nd or 3rd largest importer of Japanese scrap has been witnessing increasing domestic consumption of scrap resulting in falling demand for low-grade scrap from Japan.
4. Increased availability of low-grade Japanese scrap – Although the demand for high-grade scrap is quite strong in Japan, Its supply of low-grade scrap likely to surge in the market in absence of South Korean scrap imports, which may result in corrections in the prices further. Following which Japanese scrap supplier likely to resume bulk exports to South Asian countries like India and Bangladesh.
Bangladesh and India remain active in bulk booking from Japan in 2017 – Japan remained second largest exporter of scrap to Bangladesh and exported 238,544 MT (24%) bulk scrap in 2017 while Japan remained third largest bulk scrap exporter to India in 2017.
So increasing volumes of low-grade Japanese scrap may enter South Asian markets in the near term and it will be interesting to see its impact on market dynamics.
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