Tokyo Steel's surprise scrap-price rise

"Scrap traders had not expected Tokyo Steel to change its prices right after the Kanto Tetsugen auction because the increase was so small!" remarked a Tokyo-based scrap industry source.

Earlier in the day in its tender for Japanese H2 grade ferrous scrap for export during June held by the Kanto Tetsugen grouping of scrap dealers around Tokyo, the winning price was higher by Yen 273/t from last month's highest bid at Yen 54,602/t FAS, as reported.

Though the rise marked the tenth consecutive increase in the winning bid price, the margin was small. In the past when the increase has been large, Tokyo Steel has frequently raised its scrap buying prices to ensure that supplying scrap to its yards is more financially rewarding to traders than exporting, as reported.

Why Tokyo Steel decided to raise its buying prices by such a large amount – when the size of the rise in the top bid prices was hardly an incentive to traders – remains a mystery.

In Tuesday's auction, the dealers allocated only 10,000 tonnes to the winner, lower than the 15,000-20,000 tonnes usually offered in such auctions. Japanese media reports quote Kanto Tetsugen chairman, Koji Minami, citing scrap availability as the reason.

"The amount of scrap in the market is scarce so the delivery of H2 to yard dealers was not sufficient," Minami said. "If we had accepted the second highest bid, we were concerned about whether two vessels could be fully loaded by the end of June (the dealers' deadline for loading)."

As of May 12, traders were paying Yen 53,000-53,500/t FAS for H2 at Tokyo Bay wharves, at major wharves on Tokyo Bay such as Funabashi Central Wharf  in Chiba Prefecture, so the top bid price on Tuesday was Yen 1,000-1,500/t higher than prevailing prices at the time.

Tokyo Steel's buying-price rise announced soon after the auction means that for deliveries of H2 at its Utsunomiya works in northern Tohoku and at its Tokyo Bay Satellite Yard in Funabashi – both in the Kanto Tetsugen group's supply area – the company is now Yen 54,000/t.

Significantly, the total quantity of scrap sought by the 14 trading firms submitting bids in Tuesday's was 170,400 tonnes, as reported, which was higher by a huge 50,200 tonnes from April's auction for current month shipments and the highest since February 2021. This suggests that demand is firm while availability is stretched.

Even the Kanto Tetsugen's Minami will have been surprised by Tokyo Steel's price rise, saying on Tuesday that the small rise in the bid price was probably already anticipated by mini-mills. "It is uncertain whether domestic electric steelmakers will raise their prices in response to this result," he had said.

The suggestion is that Tokyo Steel is hoping to push domestic scrap prices higher to hurt traders. "If prices are kept rising, exporters will make a loss and so reduce their exports," the Tokyo source observed.

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

Edited by Alyssa Ren, rentingting@mysteel.com