Lower Scrap Cost Expands Margin for Japan Electric Furnaces

Japanese electric furnace carbon steel makers enjoy wider margin between ferrous scrap cost and steel products selling price recently when the scrap cost is around 27,000-33,000 yen per tonne for H2 grade while the cost wan more than 35,000 yen in April-September period. Their monthly loss is narrower than the first half of fiscal 2010 started April. The better material cost could improve the results in July-September while the major 6 makers out of listed 13 makers posted recurring loss in April-June.

The higher steel shipping price also contributes to their better results. Their selling price of concrete reinforcing steel bar was around 55,000 yen per tonne in July-September compared with less than 55,000 yen in April-June. Their margin between scrap cost and the selling price increased. Their selling price of H-beam increased from less than 70,000 yen to more than 70,000 yen during the period.

The scrap cost could be same range in the second half year ending March 2011. US scrap composite price is around US$ 350 per tonne when steel makers’ purchase is slow. Japanese electric furnace steel makers and integrated steel makers would reduce the purchase volume when their consumption decreases.

Japanese makers’ steel shipping price is expected to increase gradually when they ship existing order with price at more than 60,000 yen per tonne for rebar and 75,000 yen or more for H-beam. The higher selling price would increase their margin with scrap cost in the second half contributing to their better profitability.

Japanese electric furnace steel makers planned profitable second half of fiscal 2010 after breakeven in the first half as of April. The market condition is in line with the scenario. The major 13 makers expect to secure recurring profit for the full year while 2 makers posted recurring loss in fiscal 2009.