Posted on 21 Aug 2017
A jump in Chinese crude steel production is lifting prices of raw materials at a time when Japanese demand is rebounding amid a construction boom in the capital.
Spot prices of Australian iron ore, a benchmark, flirted with $80 per ton in mid-August to touch a four-month high. Coking coal also topped $200. Both are up 40% from lows plumbed in June.
China is ramping up crude steel output, which climbed 10% on the year to 74.02 million tons in July — close to a monthly record. After production of illegally manufactured, low-quality steel was suspended, Chinese steel bar prices shot up to a five-year high. Blast and electric furnaces meeting environmental standards have been running at full capacity. Seeking to enhance production efficiency, blast furnaces are increasingly using high-quality iron ore, competing with Japanese counterparts in procurement.
Japanese operators of electric furnaces are now buying scrap metal for more than 30,000 yen ($275) a ton, 25% above a low hit in May. Plunging Chinese exports of semifinished crude steel, used as an alternative to scrap metal, have forced operators in Vietnam and South Korea to purchase scrap from Japan at high prices. This upturn in export prices has led to a spike in domestic prices for Japanese operators.
Steelmakers are seeking to pass on higher materials expenses in product prices. Steel bar, a mainstay product from electric furnaces, now fetches around 57,000 yen a ton. An electric-furnace operator north of Tokyo says it wants to raise the price to 60,000 yen by month’s end. With urban renewal projects starting to pick up in the autumn, anticipation is growing that demand for steel will recover.
The upswing in steelmaking materials prices may not have legs, some say. Hebei Province, for example, has announced sharp output reductions aimed at easing winter air pollution. Steelmakers scheduling production cuts may have moved to build up inventories of both materials and finished products, pushing up prices. Should demand for steel plateau toward winter, they might unload inventories at low prices. Falling prices, in turn, would make it harder for Japanese steelmakers to raise prices charged to customers.
