Hyundai changes Japanese scrap tenders to cfr basis

South Korean steelmaker Hyundai Steel has started to procure some of its imported Japanese ferrous scrap requirement on a cfr basis, instead of the previous fob Japan basis.

The new system was implemented on 6 February when Hyundai bought 2,000t of H2, 2,000t of HS and 2,000/t of H1/H2 50:50 on a cfr South Korea basis.

This change in tender procedure is an attempt to better reflect imported scrap prices from different Japanese regions and minimise administration costs on logistics.

Only a portion of Hyundai's imported scrap requirement from Japan is subject to this change but the company could potentially expand the system if it is able to achieve its targets.

There will be six regional tenders — Sakata and Niigata in north Japan, Kanto, Kansai and Chubu in central Japan, and Okayama in west Japan. Hyundai previously paid a flat fob Japan price, regardless of origin, and consumed the freight differentials. Freight rates from Japan to South Korea for scrap shipments below 10,000t are typically $15-25/t, depending on the loading ports.

Market participants indicated that there is no change to that payment structure, which will remain mostly 100pc telegraphic transfer after loading. There is also no change to inspection procedures.

The new system has received a mixed feedback in Japan. Some suppliers are concerned about the higher administrative costs and the possibility of a demurrage fee as Hyundai will only accept delivery on customary quick despatch terms.

"But Hyundai's discharging port is often very congested so there is a high possibility that we may have to pay a penalty," one supplier said.

Supporters of the system said it removes the risk of Hyundai seeking a delay of delivery, which reduces suppliers' cash flow risk.

Hyundai is the second-largest electric arc furnace-based steelmaker in the world and produced 10mn t of long steel products in 2018. It also operates blast furnaces that mostly produce steel for its flat steel division.

South Korea is the largest buyer of Japanese ferrous scrap and accounted for more than half of Japanese scrap exports in 2019. Japan exported close to 4mn t of ferrous scrap to South Korea in 2019.

By Chi Hin Ling