Japan's EAF mills cut billet exports on scrap price rise

Japan's electric-arc-furnace (EAF) steel producers have been retreating from billet exports for now until they are clear what prices to offer with the rising scrap costs, though inquiries from the buyers in the Asian market have stayed active, according to sources in Tokyo and Osaka November 18.

Japan-produced SD295A 120-150mm billets are being bid at around Yen 45,000-46,000/tonne ($432-442/t) FOB, translated to around $450-460/t CFR East Asia or up Yen 1,000-1,500/t from early November, according to sources.

Japan's domestically-generated H2-grade scrap prices in contrast, rose Yen 2,000-2,500/t in the past two weeks, and the uptrend may sustain in the near term, the Japanese sources confirmed.

"Overseas buyers have raised their bidding prices for the Japanese billet, but the current prices are still not agreeable to us due to the even higher scrap prices," a mini-mill official in Osaka shared, "but we do not know how much we should raise our billet offering prices as many of the overseas inquiries are for January shipments, and we do not know where the scrap prices will be by then," he added.

Japan's mini-mills need to maintain a price gap of Yen 18,000/t at least between scrap and billet in order to justify billet exports, he elaborated, which means that his company will have to offer its billets at Yen 49,000/t FOB for exports as it is paying Yen 31,000/t for the domestically-produced H2 scrap.

"We are well aware that it is just too high to offer for now, so we will just wait for billet price to climb up further," he admitted.

The Japanese mini-mills usually do not rely on billet exports for profitmaking, but just to guarantee their productivity and efficiency, but at least billet exports should be breakeven in cost, Mysteel Global understands from the market.

Meanwhile, demand from Asia including China, a traditional billet supplier in the continent has stayed robust on the continuing recovery in their respective economic and industrial activities from the impact of the pandemic, according to the Japanese sources.

The slow-down in Japan's billet exports, however, will probably be temporary, according to a Tokyo-based steel trader.

"Higher steel production cost is not only happening to the Japanese producers but also the global steel mills, so the patience will pay off and the Japanese mills may soon return to the billet export market when buyers are willing to pay the right prices," he said.

Over January-September, Japan exported 916,871 tonnes of billet, or up 42.5% on year, according to the latest data from Trade Statistics of Japan, as the Japanese mini-mills have shown the greater interest in exporting billet since late 2019 when the domestic steel demand showed signs of waning, as reported.

Written by Yoko Manabe, yoko.manabe@mysteel.com

This article has been published under an article exchange agreement between Mysteel Global and SteelMint.