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Japan scrap export prices back to relatively low level

There are signs that Japan's ferrous scrap export prices have returned to a relatively low level in the repercussions of a depreciating yen against the US dollar in the foreign exchange market, according to the parties concerned. On the afternoon of Feb 6, the exchange market indicated a temporary quotation of one US dollar to the level of JPY 94, a marked depreciation of the yen for the first time in two years and nine months since May 2010. It looks as if a continued depreciation of the yen serves to afford room for an advance in Japan's ferrous scrap export market for new deals.

In Japan, many of ferrous scrap distributors expect domestic market conditions for locally available ferrous scrap to continue firm in February. In late January, domestic market prices once bore signs of an adjustment in main trading areas such as Kanto and Kansai, as shown by the correction of high prices there. But there is a possibility that the momentum for a future upswing will become strong again in domestic market prices, given that Tokyo Steel Mfg Co increased its purchase prices of local ferrous scrap from Feb 7, the company's price increase for the first time in two weeks.

Ferrous scrap distributors assumed last week that Tokyo Steel would reduce its purchase prices of local ferrous scrap before the beginning of February. In contrast, they also forecast the domestic ferrous scrap market would turn upward again in its basic direction after consecutive holidays of Feb 9-11. As a matter of fact, though, Tokyo Steel increased what it pays for local ferrous scrap from Feb 7. As a result, it is likely that a bullish view of the market prospects will further spread among ferrous scrap distributors.

Under the existing circumstances, Japan's trading companies point out two strong factors in new deals for their ferrous scrap exports. One is a continued depreciation of the yen against the US dollar. The other is the ensuing advance the nation's ferrous scrap export market for new deals.

In Japan's ferrous scrap exports, negotiated prices of No2 HMS for South Korea once slid to JPY 31,500 to JPY 32,000 per tonne FOB in late January after they rose to JPY 33,000 to JPY 33,500 per tonne FOB. But they bounced up to the level of JPY 32,500 per tonne FOB last week. With enhanced sentiment for a price recovery of No2 HMS, it is likely that the Tokyo-based Kanto Tetsugen cooperative association of ferrous scrap dealers will hold its export tender next week for March shipment. Therefore, there are rising expectations among ferrous scrap dealers for results of Kanto Tetsugen's new export tender.

The negotiated No2 HMS price last week of JPY 34,500 per tonne C&F for South Korea would translate into USD 369 per tonne C&F at an exchange rate of USD 1.00 to JPY 93.50. By comparison, the going prices of US ferrous scrap imports into South Korea are viewed as the range of USD 410 to USD 415 per tonne C&F. Therefore, it is safe to conclude that the current price level of Japanese No2 HMS is lower by nearly USD 20 per tonne than that of US No1 HMS even considering their quality differential of around USD 15 per tonne, Japan's trading companies believe.

The way Japanese trading companies see it, even if prices of No2 HMS have moved up to JPY 33,000 to JPY 33,500 per tonne FOB, they will still stand at a relatively low level in comparison with US No1 HMS. Besides, they expect Japan's domestic ferrous scrap market to hold strong, led by the export market for Japanese ferrous scrap.

Meanwhile, the world's spot prices of iron ore fines grading 62% Fe indicate the level of USD 147 to USD 148 per tonne FOB so far for delivery in China. They have continued firm at a flat level in their basic tone since late January when they rallied. Accordingly, there are expectations among Japanese trading companies for resumed strong inquiries from China for purchases of Japanese ferrous scrap.

On the other hand, some Japanese trading companies are quoted as saying that Japan's ferrous scrap export market for new deals is unlikely to advance considerably. They are even taking a prudent view that bearish sentiment could arise in the export market. As one reason for their view, they point out the seasonal ups and downs of the world's ferrous scrap markets. Market prices tend to strengthen in December-January in reaction to decreased ferrous scrap supplies in winter while they tend to soften from February when cargo movements of ferrous scrap improve as a thaw sets in.

Moreover, other Japanese trading companies are concerned about a continued decline in the latest negotiated prices of ferrous scrap exports from the West to Turkey.

Meanwhile, there are voices from South Korean steelmakers to the effect that Asian prices of both finished and semifinished steel products have yet to go up to the level that compares with the current upswing in ferrous scrap prices.

Source - The TEX Report

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