Japan's domestic iron scrap market is currently entering a complex phase in which expectations of further price increases and sluggish real demand are intermingled. What emerges from the movements of dealers in western Japan is a clear divergence in strategy between blast furnace producers and major electric arc furnace operators, as well as the rising tide of resource nationalism underpinned by economic security concerns. At the same time, the prolonged geopolitical risks in the Middle East are beginning to erode the entire supply chain, and steel manufacturers are facing a dilemma unlike anything they have encountered before.
1. The Diverging Procurement and Pricing Strategies of Blast Furnace and EAF Producers
Currently, it is the blast furnace producers such as Nippon Steel and JFE Steel that are driving the domestic market. Centred on the western Japan market, the buying prices for premium grades of iron scrap, such as shindachi (new cuts) and HS have already broken into the ¥60,000 per tonne range.
In contrast, Tokyo Steel, the dominant force among EAF producers, is deliberately refraining from following suit. Its posted price for shindachi remains at ¥55,000, and even accounting for the under-the-counter premium price (ura-ne) that reflects actual market conditions, it falls short of the prices being offered by blast furnace producers. Behind this price gap lies a clear technology and procurement strategy on the part of Tokyo Steel. The company places primary emphasis on 'manufacturing high-quality steel products using lower-grade scrap,' and this stance is strikingly evident in the fact that it has set its buying prices for both special-grade and first-grade scrap at the same level of ¥50,000 per tonne. This is not merely about cost reduction — it also carries the strong implication of a countermeasure against the overheating export market (an export suppression strategy).
(market H2 scrap price trend chart yen/ton)
2. Economic Security, the Acceleration of 'Resource Encirclement,' and Dealer Concerns
Blast furnace producers are likely to continue paying premiums for premium grades going forward. Underlying this is a resource encirclement strategy advancing under the banner of 'economic security.'
In the flow toward decarbonisation, iron scrap has shifted phase from a mere recycled raw material to a 'strategic resource.' Nippon Steel's true intentions are transparently visible: not only to prevent the outflow of valuable high-quality domestic scrap, but also to maintain advantageous conditions, specifically, the ability to procure high-quality domestic scrap cheaply on an exclusive basis, by imposing an export tax.
However, if this export tax concept were to become reality, Japan's domestic iron scrap market would risk forming its own price dynamic, divorced from international market conditions, essentially a fixation at a domestically unique low-price range. This would mean that sales channels to overseas markets, where higher prices can be obtained, would be restricted, and pricing power would be concentrated in the hands of the large domestic blast furnace producers. From the perspective of iron scrap dealers who are the suppliers, this represents the arrival of a wholly undesirable market environment in which profit opportunities are taken away, and the potential conflict of interest with the manufacturers' side is likely to deepen further going forward.
3. Short-Term Price Outlook: The Possibility of Major Thresholds Being Reached Earlier Than Expected
Despite these concerns about medium-to-long-term market fragmentation, near-term scrap prices are likely to rise at a pace exceeding market expectations against the backdrop of the current tight supply-demand balance and various geopolitical risks. The scenario of H2 reaching ¥60,000 per tonne and shindachi reaching ¥70,000 per tonne should be brought forward compared to conventional projections.
The immediate test will be the Kanto Tessen export tender scheduled for April 10. The market has already priced in a significant price increase, and the awarded price is expected to reach around ¥53,000. It is also virtually certain that, in step with this, shindachi prices at Chubu Tessen will show a further substantial rise.
(Kanto Tessen tender and Chubu Tessen shindachi price trends over the past year yen/ton)
4. The Achilles Heel: Spread Compression and the Divergence from the Real Economy
However, the surge in raw material prices does not translate directly into improved earnings for steel manufacturers. On the contrary, the greatest risk in the current market is the 'sharp compression of the spread (profit margin)' and the 'cooling of real demand.'
Of particular concern is the multi-layered supply chain disruption caused by the prolonged Hormuz Shock.
- Production cuts in final products: Due to disruptions in the logistics network, procurement of components in manufacturing industries such as automobiles and home appliances is stalling, and production cuts arising from the inability to manufacture final products are materialising. This results in real demand for steel products itself failing to grow.
- Operational risk for steel manufacturers: The impact does not stop on the demand side. Steel manufacturers themselves are also facing difficulty obtaining auxiliary materials, and in the worst case, there are concerns about a situation where they are forced to halt production even before they can secure raw materials (scrap).
Summary
The current iron scrap market is under powerful upward pressure from the aggressive procurement and resource encirclement strategy of blast furnace producers. However, beneath the surface, three serious threats are gaping wide: the concern over the market becoming a Galapagos-like isolated ecosystem hinted at by the export tax concept, the stagnation of the real economy originating from the Hormuz Shock, and the severe bottleneck of auxiliary material shortages. How each manufacturer responds to the 'compressing spread' of high raw material costs and low product prices, their procurement capability and their ability to pass costs through to product prices, is being tested as never before.
Written by IRUNIVERSE YT, Translated by Mehmet Gönültaş
