Japan's steel scrap price could hit a 27-year high in April on continued strong demand from South Korea and China, a trade organisation said on Monday.
High steel scrap prices squeeze profit margins at minimills and specialty steelmakers, like Tokyo Steel Manufacturing Co, Aichi Steel Corp and Daido Steel Co, who use scrap as major input. Big steelmakers like Nippon Steel Corp and JFE Holdings Inc use iron ore as the key ingredient.
By midsession, shares in Tokyo Steel were down 0.3 percent at 1,762 yen, Daido Steel was down 0.1 percent at 707 yen. The iron and steel subindex fell 0.14 percent. The Japan Ferrous Raw Materials Association said steel scrap price in the first week of April rose to 35,136 yen ($294.4) per tonne. The current peak is 36,900 yen hit in March 1980.
"South Korea is boosting purchases of scrap from Japan, causing a supply shortage in the domestic market, due in part to Russia's cutback on exports to preserve its resources," a spokesman at the organisation said. "The market is watching whether Japanese minimills could pass the high raw material cost on to their product price in April."
Prices of steel bars used in construction have inched up since early this year, but those of H-shape beams so far remain flat. High scrap prices made steel companies' sentiment less upbeat in the Bank of Japan's quarterly survey of corporate sentiment in March.
The sentiment index for steel companies was plus 46, meaning those firms who think business conditions are favourable outnumbered those who think they are negative by 46 percentage points, up from 43 percentage points in December. But their diffusion index for June was seen at plus 31, showing steel firms are less upbeat about conditions over the next three months.
Tokyo Steel in January cut its profit estimates for the year to March 2007 by 18 percent on unexpectedly high steel scrap prices and a supply shortage, but in February announced across-the-board price rises for a second consecutive month citing strong demand at home and abroad.
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