ELG is a pioneer in stainless steel blend scrap processing and a subsidiary of European stainless steel giant Aperam. What strategy is ELG Japan, its Japanese subsidiary, pursuing in the domestic market? IRuniverse's Tanamachi sat down with President Kato, a veteran of the industry, to dig into the movements of Chinese-affiliated operators, the current state of domestic manufacturers, and the relationship with JSP (Japan Stainless Processing), in which the parent company is also a shareholder.
Interviewer: Yuji Tanamachi (IR Universe)
Interviewee: President Kato (ELG Japan Co., Ltd.)
Movements of Chinese-Affiliated Shippers and the Changing Domestic Collection Structure
Tanamachi: I would like to ask about the changes in Japan's domestic stainless steel scrap market over the past few years. There was a period when Japanese operators, as well, were aiming at the Chinese market. Still, recently, it seems that the buying momentum of Chinese-affiliated shippers is affecting the domestic market.
Kato: Yes. That said, they are not always aggressive buyers. When they buy, they buy all at once, but when conditions are unfavourable, they don't move at all. Korean POSCO and Taiwanese manufacturers have been a presence in this market for a long time, and there have been periods when China's momentum increased, but in reality, it is not the case that 'China is always strong.'
Tanamachi: That is certainly true. In the Kanto region, companies like Towa in Kawasaki show a strong presence in stainless steel, but on the other hand, there are also growing cases of material being brought directly to Chinese-affiliated yards. How do you view the competition with them in the domestic collection situation?
Kato: What Chinese-affiliated operators specialise in is scrap from demolition work and miscellaneous material that still has attachments, the kind that requires pre-processing. They pay reasonably well for that material and buy it up. On the other hand, Japanese operators have an increasingly strong tendency to prefer clean scrap that requires less handling. There is a degree of market segmentation at play, and it is not the case that their presence is radically disrupting the major flow of the domestic market.
ELG Japan's Business Model: 'Quietly Processing 2,000 Tonnes'
Tanamachi: Could you tell us about your company's specific current handling volumes?
Kato: At present, we handle approximately 2,000 tonnes of stainless steel scrap per month consistently, covering everything, including 300-series, 400-series chrome, and so on.
Tanamachi: Do you carry out demolition processing using large-scale equipment such as guillotines or shredders?
Kato: Basically, we do not. What we primarily buy is furnace-ready material (prompt scrap) that has accumulated at yards around the market. We are not specifically targeting demolition material — it is more that when we buy furnace-ready material, demolition material happens to come along with it. We collect clean furnace-ready material, load it directly into containers for vanning, and export it primarily to Taiwan and similar destinations.
Tanamachi: Are there any aggressive strategies in the pipeline, such as expanding your domestic market share, increasing the number of locations, or pursuing M&A?
Kato: We have no such intentions at this point. Our share in Japan's stainless steel scrap market is just a few percent. We are not in a position to compete head-on in terms of scale with the Nippon Steel group or the massive shippers handling over 10,000 tonnes per month. That is precisely why we focus on quietly and reliably processing our 2,000 tonnes per month. That is our fundamental policy.
'Same Parent Company, but Domestic Competitors' — The Complex Relationship with JSP
Tanamachi: This may be a somewhat difficult question to answer, but I would like to ask about the relationship between ELG's parent company and JSP (a joint venture with the former Nippon Steel Stainless). ELG is a shareholder of JSP, but within the Japanese domestic market, ELG Japan and JSP are partly in competition with each other on scrap collection, are they not? Is there any supply of scrap from ELG Japan to JSP?
Kato: That is a very delicate area (laughs). As a prerequisite, the management of JSP as a joint venture is handled by ELG's parent company in Germany, and we at ELG Japan have no involvement. So, from ELG Japan's perspective, JSP is positioned essentially as 'just another domestic peer and competitor,' but since we also supply to JSP, they are both a competitor and a collaborator. On the other hand, from Nippon Steel's perspective, we would be seen as 'the Japanese subsidiary of their joint venture partner, ELG.'
The Threat of Imports and the Domestic Manufacturers' Strategy of 'Maintaining High Prices'
Tanamachi: On the subject of domestic stainless steel demand, at the moment, stainless steel manufacturers such as Nippon Steel and Nippon Kinzoku are continuing to reduce production. Meanwhile, the inflow of imported materials from overseas is becoming increasingly noticeable.
Kato: Yes. The impact of imported materials, particularly finished products such as stainless steel flat products and processed goods, is significant. There are imports of approximately 300,000 tonnes per year, with increasing inflows from the Aoyama Group-related operations in Vietnam, as well as from Malaysia, India, and other sources.
Tanamachi: There is also discussion of anti-dumping duties, but imports continue to come in regardless. In other words, it means that Japan's stainless steel market is attractive precisely because it commands high prices, doesn't it?
Kato: Exactly. Japanese manufacturers are pursuing a strategy of reducing production volumes to maintain high selling prices and secure profits. In a sense, because they are protecting a 'high-price sanctuary,' foreign manufacturers find it worthwhile to export to Japan even after paying a certain level of tariffs. However, overseas manufacturers are also making powerful investments in partnership with Japanese trading companies and coil centres, and it may well be impossible to prevent this inflow of imported material going forward.
Tanamachi: In the European market as well, companies like Outokumpu are pushing their environmental credentials, producing stainless steel from 98% recycled material, as a key value proposition. The Japanese market has its own distinct challenges. Thank you very much for your valuable insights today.
(IRUNIVERSE YT, Translated by Mehmet Gönültaş)
