FOCUS: Asian prime scrap sees record premiums amid lower auto output

Traditional relationships between prime steel scrap and lower-grade material in key Asian markets have shattered over recent months, market sources told Fastmarkets in early September 2021.

Busheling scrap – which is known as Shindachi in Japan – is a prime scrap grade generated from offcuts from the making of steel sheet-intensive products such as vehicles and white goods. Reduced output at leading Japanese carmaker Toyota this year has slashed the availability of such material and raised prices for the grade.

Japan is the largest exporter of busheling in Asia so Japanese prices represent the benchmark for the high-grade material across the region.

In 2020, Japan exported 1.68 million tonnes of prime scrap, up by 8.4% year-on-year from 1.55 million tonnes in 2019, according to the Japanese Iron & Steel Recycling Institute (JISRI).

In January-July 2021, Japan exported 687,204 tonnes of prime scrap under HS code 720441000, with South Korea being the largest buyer at 290,301 tonnes, according to Japanese customs statistics.

Fastmarkets’ price assessment for steel scrap Shindachi, export, fob main port Japan, was ¥62,500-63,500 ($567-576) per tonne on Wednesday September 8.

That price assessment unchanged week on week but it was up by 103.2% year-on-year from ¥32,000 per tonne fob in September 2020. And the premium for Shindachi busheling over H2 scrap - an equivalent grade to HMS 2 - has risen sharply over the past year.

The premium in Fastmarkets’ price for steel scrap Shindachi over the price for steel scrap H2, export, fob main port Japan, soared to an average of ¥17,750 ($161) per tonne in August 2021, up from an average of just ¥2,963 per tonne in August 2020.

Game changer
This meant that the traditional link between busheling prices and lower-grade scrap prices has been destroyed, sources said.

“Some Korean mills have been [very] aggressive on their prices for Shindachi in recent months. The main reason for this is rising scrap utilization in their blast furnace [BF] operations due to CO2 emissions policies,” a Japanese supplier said.

“On the other hand, H2 prices are still very low. We need to treat H2 and Shindachi as different commodities from now on,” he added.

The strong busheling-HMS premium can also be seen in container-focused scrap markets, with Bangladeshi buyers able to pay $560 per tonne cfr for busheling in containers on September 9, while the most recent deals for HMS 1&2 (80:20) were closed at $497-510 per tonne cfr, according to a major scrap exporter.

Indonesia, starved of steel billet due to high buying prices in China, was able to pay $520 per tonne cfr for busheling in containers, according to a Taiwanese trader.

japanese-stats-chart.jpg

Outlook
Major Japanese BF operators have also increased their intake of higher grades such as Shindachi and heavy scrap (HS) this year amid strict carbon-neutral goals, which sources said has constrained exports of scrap from Japan.

Strong consumption of Shindachi by BFs in Japan and South Korea will probably continue for environmental reasons, but question marks remain over generation levels in the coming months, sources said.

“Mills in the Nagoya region are facing a shortage of Shindachi due to shrinking generation from the production cuts in the auto sector. The Tokyo area is a bit weak, but mills’ appetite is high in Nagoya,” the Japanese supplier source said.

“The auto industry has reduced production, so suppliers are holding on to Shindachi cargoes. Sellers will [try to] raise prices for Shindachi and we will not see any big drops for this material any time soon,” a Singaporean scrap trader said.

On August 19, Toyota announced production stoppages at 27 of the total 28 separate production lines in its 14 Japanese plants.

Some lines, such as the production line for low-volume models at the Motomachi Plant in Aichi prefecture, were not scheduled to operate at all in September. But some lines, such as production line No1 in the Tahara plant, will only be affected for two days in September, Toyota said.

A Japanese trading source had a slightly different view on the matter, however.

“Shindachi prices will stay high through September, but auto production may recover in Japan during October,” he said. “So the availability of Shindachi may rise in October, and that could push prices down.”

Japanese factory output dropped by 1.5% month on month in July, according to the country’s Ministry of Economy, Trade & Industry (METI), as a result of declines in the production of vehicles and electrical items.

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