Weak steel demand drives Japan scrap exports in 1Q

Japanese ferrous scrap exports rose by over a third on the year in the first quarter, driven by weak domestic demand as mills ramped down in response to a sluggish steel market.

Japan's scrap exports rose by 36pc year on year to 2.41mn t in January-March, customs data show.

Exports in March fell by 2pc from February to 866,254t, but this was almost double the total in March 2019.

Covid-19 restrictions imposed in February-March depressed domestic steel demand as some manufacturing and construction activities halted. Steelmakers were forced to cut production to reduce their costs and scrap demand fell as a result, leaving Japanese suppliers looking to export markets to absorb ample supply.

Japanese exporters offered material at competitive prices, displacing US supply in Vietnam and Taiwan.

Export market consolidates

The four largest buyers of Japanese scrap comprised 90.51pc of Japan's ferrous scrap exports in March, down by 1.68 percentage points from February.

South Korea regained top spot, accounting for a third — 285,580t, up by 1.7pc on the month. But South Korean demand for seaborne scrap is expected to fall in the second quarter as mills signalled plans to cut output. Mills will probably step up domestic scrap collections instead.

Vietnam had a 30pc share of exports in March, receiving 260,176t, down by 26pc on February, but up by 38.5pc on the year. Steel demand in Vietnam was weak and is expected to remain so in the near future. Mills have been unable to raise their domestic rebar prices because of weak demand.

Exports to Taiwan rose by 6pc from February to 112,929t, with Japanese scrap priced competitively against US material. Availability from US suppliers from March was limited as Covid-19 measures hit collection rates.

Japanese offers into Taiwan were mostly at a $10/t premium to US offers in late January-late February. This gave Japanese suppliers an advantage, given that container handling charges for US scrap exceeded $10/t. The Japan-Taiwan delivery time was also around half that for US-Taiwan shipments.

Exports to Bangladesh rose most sharply — by 53pc to 99,726 in March. First-quarter exports nearly trebled on the year to 208,267t. Strong steel demand meant Bangladeshi buyers were willing to pay higher prices for prime grade scrap.

Momentum fades

Japanese scrap exports are likely to fall soon, despite the state of emergency being lifted in regions apart from Tokyo, Osaka and Hokkaido on 14 May, because of tight domestic availability and lower global steel demand.

Many market participants expect any recovery in operating rates to be slow and see domestic scrap availability remaining tight, with Japanese suppliers extending lead times for their most recent export sales over the past week. They are no longer confident they can collect sufficient scrap to meet orders under a typical four-week lead time. Suppliers into Vietnam in the past week asked for the delivery period to be specified as July, rather than mid-June.

Global steel demand is not expected to rebound any time soon, as many countries remain under lockdown. And any recovery in usage by large consumers, such as the automotive industry, is likely to be slow.

By Terry Chuay and Chi Hin Ling