Japan's power shortage seen hitting ferrous scrap prices

Tokyo Electric Power Co (TEPCO), Japan's largest electric power company, has asked large industrial power consumers including electric-arc furnace steel producers to decrease their power consumption, an order that could impact mini-mill production and undermine scrap prices.

The power company's unusual move was prompted by a shortage of power as consumers crank up heating to cope with unseasonably cold weather, and amid tight supplies of LNG for electricity generation. Some steel producers in the Kanto area around Tokyo have already shut their plants or were planning to halt for a couple days this week or over the weekend in response to TEPCO's plea, sources shared on January 22.

TEPCO supplies power mainly to Kanto-area prefectures around Tokyo, and to Yamanashi and part of Shizuoka prefectures, Mysteel Global notes, areas where some 14 mini-mills are located.

A procurement official from a Tokyo-based mini-mill said his company was asked by TEPCO on January 20 to decrease its use of power at its production facility in the area. "Recently, we've been operating our production facilities only on weekends and on holidays, so we plan to skip our production during this weekend to respond to TEPCO's request," he said.

His company produces about 25,000 tonnes of finished steel products monthly at its plant in the Kanto, meaning that the halt in production could lead to a decrease in scrap consumption of perhaps 5,000-6,000 tonnes, he roughly calculated. "Many mini-mills will respond to the request because TEPCO is preparing to reimburse mills for the power they don't use, so the decline in scrap consumption maybe larger," he expected. The size of the refund will differ depending on each mill's original contract with the utilities giant, he added.

Prices of domestically-generated scrap in Japan started declining from mid-January, but many market participants had believed that prices would not weaken too far because scrap generation has been slow while volumes of scrap collected in the Kanto are still sailing to West Japan mills and for export. "But now the situation has changed rapidly, and this shortage of power has become another factor for Japanese scrap prices to decline further," the trader added.

As of late Friday afternoon, mini-mills around Tokyo were paying Yen 39,000-40,000/t ($376-386/t) for H2 grade scrap, down Yen 1,000-1,500/t on week, according to scrap traders in the city.

Meanwhile, TEPCO has also requested private companies including integrated steel producers that host power-generation facilities to share and supply their power to avoid the risk of blackouts.

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

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