Japan: Excess supply forces Tokyo Steel to stop taking scrap

Tokyo Steel Manufacturing, Japan's leading electric-arc-furnace (EAF) steel producer, has taken the unusual step to adjust scrap arrivals at its Utsunomiya Works, north of Tokyo, by telling dealers it will cease accepting all deliveries beginning Thursday morning, June 30. It will commence receiving scrap from next Monday, July 4, a company official said Thursday.

The Utsunomiya Works hosts a 140-tonne DC EAF and produces about 50,000 tonnes/month of H-beams and channels, mostly for supply to building contractors in the upper Kanto region and Tokyo, Mysteel Global notes.

Trading sources said it is very unusual for the leading mini-mill to stop receiving scrap because it usually keeps the volumes of scrap arriving at its gates in check by adjusting its prices, sometimes on a daily basis if markets are moving quickly.

"Utsunomiya's scrap yards have been full," Tokyo Steel's official explained. "We tried to continue receiving deliveries, based on our policy, but physically, we just cannot receive any more," he said.

"We are not trying to decrease scrap prices," the official insisted.

A Tokyo-based scrap trader said that Tokyo Steel has been cutting prices frequently since early May, but that arrivals at Utsunomiya have not declined because dealers were rushing to deliver. They feared that prices of Japanese scrap for export would drop further due to stagnated international markets, prompting domestic mills to aggressively cut their buying prices too.

"From Tuesday, Tokyo Steel had started limiting the hours per day it would accept deliveries, which was also an unusual measure to adjust the arrival volume. But we also heard that this measure did not work well," he observed.

The Utsunomiya Works usually receives trucks bearing scrap from 6am Monday, all the way through until 4pm the following Saturday. However, starting this week, it would only receive heavy scrap, shredded and Shindachi deliveries between 6am and noon on June 28 and 29, and then from Thursday, it narrowed the delivery window further to just between the hours of 6am and 8am.

Tokyo Steel began adjusting scrap buying prices lower at its Utsunomiya Works from May 7, Mysteel Global notes, with the total reduction from the 16 cuts the company has made over May-June reaching a huge Yen 15,500/tonne ($113/t), including the latest adjustment effective from June 30 arrivals where the steelmaker clipped prices by a further by Yen1,000/t. The H2 buying price at Utsunomiya works has become Yen 51,000/t, according to the company.

A second scrap trader in Tokyo observed that scrap export negotiations have been stagnated because Japanese scrap prices are still high compared with those overseas. Exporters have been inactive collecting scrap, a slowdown that's resulted in scrap dealers actively heading to the domestic mills.

Moreover, it is nearly guaranteed that Japanese prices will fall further in the weeks ahead. "The EAF mills will have shutdowns for annual maintenance, to reduce power consumption during the peak summer season when power rates are high, so overall scrap demand will be lower and domestic scrap prices will fall further," he predicted. Most mini-mills will halt operations for several days to as long as a week during July and August, Mysteel Global notes.

As of Thursday morning, EAF mills in the Kanto region around Tokyo were paying Yen 51,000-52,000/t for H2 grade scrap, lower by Yen 1,000/t on week, and shippers around Tokyo Bay ports were paying Yen 48,000-49,000/t FAS, down by Yen 2,000/t on week and below the Yen 50,000/t FAS-benchmark for the first time since January, sources confirmed.

Written by Yoko Manabe, yoko.manabe@mysteel.com
This article has been published in accordance with an article exchange agreement between Mysteel Global and SteelMint.