Jump in Japanese scrap export prices prompts Tokyo Steel to action

Earlier in the day, members of the Kanto-region scrap dealer around Tokyo accepted a bid of Yen 53,081/t FAS for the H2 grade scrap they were offering for export before February 29, representing an increase of Yen 2,061/t compared with the winning bid in last month's auction. Indeed, the jump marked the third successive monthly rise in Kanto Tetsugen auctions and also meant that the winning price is the second-highest in the grouping's history after last March's top bid of Yen 55,680/t.

Tuesday's tender attracted 21 bids from 15 firms seeking a total quantity of 112,200 tonnes, higher by 8,500 tonnes from the December auction. Despite the high price, the dealers agreed to accept only one bid and allocate 15,000 tonnes, even though some dealers had apparently argued they could gather as much as 30,000 tonnes if needed, given that some mini-mills are slowing acceptance of scrap.

On Monday, for example, Tokyo Steel had announced that until February 6, it would shorten the hours it would accept trucks at its Utsunomiya plant, north of Tokyo, from 8am-4pm to 8am-noon. The mill was following other Kanto-based makers including Jonan Steel and Sanko Seiko that last week told scrap collectors they would limit or stop receiving scrap deliveries sooner in the business day because supplies were sufficient.

As per its custom, the Kanto Tetsugen did not reveal the winner, saying only that the cargo was destined for Vietnam or Bangladesh, but industry watchers say the winner was Nagoya-based scrap trader Toyotsu Material and will ship the scrap to Bangladesh.

Kanto Tetsugen chairman Koji Minami seemed to downplay the leap in price, telling Japanese media that it was "a little higher" then he'd expected, while insisting that he had believed the result would be successful at around Yen 53,000/t.

"The yen has weakened to about Yen 146=US$1 compared with the beginning of the year," Minami commented, meaning that Japanese shippers can lift their domestic purchase prices because they will recoup in yen when overseas customers pay in dollars. "Overseas buyers in Bangladesh and Vietnam are also beginning to replenish their ferrous scrap stocks," he added.

However, not all market insiders were as sanguine about the result. Afterall, the winning price was as much as Yen 3,000/t higher than the FAS Tokyo Bay market price that traders were paying the same day for scrap for export and for shipping to other parts of Japan.

"I'm shocked it's so high," said an executive with another Japanese mini-mill after the bid results were opened. "I'm sure Tokyo Steel will soon lift prices."

He was right because in mid-afternoon, the Tokyo-based mill announced it was raising prices for all grades at all its scrap storage facilities and mills by Yen 2,000/t.

The increase, Tokyo Steel's first since December 9, lifted its H2 buying price to Yen 53,000/tonne at its Tahara Plant in central Japan, at its Okayama works near Kobe and its Utsunomiya plant, according to the company's new price policy.

Though domestic scrap supplies are relatively loose, after the jump in the H2 export price, Tokyo Steel doubtless felt it had to lift its scrap buying prices to prevent scrap from being exported and so face a shortage at its works just ahead of the usual uptick in construction steel demand in spring, Mysteel Global notes.

Written by Russ McCulloch, russ.mcculloch@mysteel.com

Edited by Alyssa Ren, rentingting@mysteel.com