Asian steel scrap buyers will probably remain risk-averse next year and continue to focus on purchasing Japanese scrap in small bulk cargoes over US scrap on large vessels.
Japanese scrap, which has a shorter lead time and more flexible shipment sizes, is often considered by Asian buyers to be lower risk compared with US scrap, which has a longer delivery period and less wiggle room in parcel sizes, particularly when steel and scrap demand is weak.
South Korean scrap imports fell by 44pc year on year to 1.83mn t in the first 10 months of 2024, but Japanese scrap's market share increased to 72pc from 70pc the previous year. Vietnamese buyers, which have been largely absent from the US scrap export market for over a year, imported 2mn t of Japanese scrap in January-October, rising by 63pc on the year and accounting for 44pc of Vietnam's total imports. The Philippines, once a net exporter of ferrous scrap, has imported more scrap in recent years, with Japan supplying 92pc of its scrap imports during the first three quarters of 2024.
The growing steelmaking capacity and infrastructure investments in southeast Asia will further drive demand for Japanese scrap in the region in the coming years.
Japanese scrap suppliers may also have greater appetite to sell to overseas markets in the coming year because lower domestic scrap demand in the country and the weaker yen against the US dollar have widened the price spread between domestic and exported scrap.
The spread between Vietnam imported scrap prices and Japan domestic collection prices increased to $77/t on 6 December from around $53/t on 5 January after Tokyo Steel — the domestic scrap price setter in Japan — made multiple price cuts of more than ¥10,000/t ($66/t) since July, while prices for HMS 1/2 80:20 cfr Vietnam have dropped by only around $40/t.
Japan's leading steel mills plan to transit more production from blast furnaces to electric arc furnaces, which may increase domestic scrap demand after 2027. But in the short term, prices are still expected to remain largely dependent on conditions in the wider ferrous market.
Japanese crude steel production in the first 10 months of 2024 totalled 70.2mn t, down by 3.7pc year on year. Major steelmakers in Japan have cut their production forecasts for the 2024-25 fiscal year, citing a weaker domestic market. Demand for building materials is expected to decline further owing to rising construction costs and persistent labour shortages.
Japanese steel imports rose by 10pc year on year to 2.8mn t in April-September, the highest since 2014, according to the finance ministry. Many Japanese mills fear that rising imports could further pressure the domestic steel market in 2025 if there is no government intervention.
With the Japanese ferrous market expected to remain clouded by lower domestic steel production and higher steel imports, any excess scrap supply will be sold in the export market to reduce sales pressure in the domestic market.
Japanese scrap exporters are facing challenges such as volatile exchange rates and vessel shortages, which have limited their export appetite in the past few months. Freight rates for scrap cargoes from Japan have increased by over $10/t since October and led to lower offers from Japanese suppliers and a wider bid-offer spread in the last quarter of 2024. But traders anticipate that this bottleneck will gradually ease in early 2025.
