Japan's scrap accumulation slowing down

• Japan has over 1.4 billion tonnes of scrap accumulation
  
  
• Country is third-largest scrap exporter globally after EU & the US
  
  
• China emerging as importer of high-grade scrap
  
  
• Japan needs to increase EAF share from present 25%
  
  
• Scrap generation from auto sector to drop as market shifts to electric vehicles
  
  
• High-grade scrap supply to become tighter
  
  
  

Morning Brief: Japan has over 1.4 billion tonne of scrap accumulation per annum, but the speed has slowed down. “We have plenty of scrap resources in Japan but, regrettably, resources are exported a lot,” says Gaku Ito, General Manager, Sales, Tokyo Steel.

Speaking at the recently-concluded Engage 2.0, a five-day webinar series organised by SteelMint, Ito said, Japan is a leading scrap exporter in the world. In Asia, Japan is the largest supplier of steel scrap. Exports in 2020 were a record around 9 mnt.

Russia being a leading exporter, “we have to watch the impact of the invasion now,” Ito informed.

Scrap export destinations: The scrap export destinations of Japanese scrap have changed. China disappeared from the imports market in 2019 after importing around 0.29 mnt in 2017-18. Korea’s share decreased from almost 4 mnt in 2019 to 3 mnt in 2020, while Vietnam’s rose from 2 mnt in 2019 to 3.4 mnt in 2020. Japan’s total scrap exports comprised 7 mnt in 2021. However, Ito stresed that exports will shrink and domestic use will increase.

China’s demand for high grade scrap: China imported mainly low-grade mixed metal before banning imports in 2018. In 2021, it re-opened imports, but only for good quality scrap, such as HS grade.

The Chinese government aims to increase scrap utilisation by up to 30% by 2025. Working towards that goal, the government has committed imports of prime grade scrap in January last year.

So, Japanese scrap exporters expected China to import around 10 mnt of scrap. But, it disappointed by importing only 500,000 tonnes in 2021. Japanese scrap prices were too expensive for China. They brought semis, instead, from other countries.

On the other hand, globally, EAFs’ share is expanding with many new investments happening, especially in the US (Nucor, SDI, BRS and US Steel). These mills need especially prime grade scraps for producing high quality flat products via the EAF route.

Europe has about 38 mnt of new EAFs.

Higher EAF share need of hour

It is time for Japan to increase the share of its electric arc furnace (EAF) mills, being the third-largest steel-making company in the world. It is not just a local issue in Japan, but a global one, Ito stressed.

Ito reminded that near-zero emission steel is the preferred choice in global markets and near-zero-emission production is targeted in every region by 2030 or earlier. Therefore, EAF share is globally expanding.

Global manufacturers of auto and home appliance need to reduce embodied carbon in their steel-made products as soon as possible. Using EAF steel is a primary shortcut towards the goal, Ito stressed.

EAF-BF ratio

Dwelling on the global EAF-BF ratio, Ito said in 2020 this was at 26.3%-73.2%. In the US, it was at 29.4%-70.6% and in EU-28, at 42.4%-57.6%. In Japan, at 25.4%-74.6%.

The US is the second-largest emitter of greenhouse gases after China but emission from its steel sector is only 0.6%.

On the other hand, in Japan, emission from the steel sector is 13%. Steel accounts for 40% of the total industrial sector. Why is it so different?

One of the factors is the EAF share, Ito stressed, adding “it is time for the Japanese electric furnace mills to expand that share because Japan is the third largest steel-making company in the world”.

EAF enablers

To enable a higher EAF share, Ito suggested three key factors:

•  Stable supply of electricity;
  
  
•  Availability of efficient steel scrap from the domestic market; and
  
  
•  Technology to produce good quality steel from scrap.
  
  

Electricity supply in Japan has been stable for long, but after the 2011 nuclear power plant accident, most of the nuclear power plants have stopped operations. Now, renewable energy-based electricity's share is increasing. 

Outlook

Dwelling on the future global scrap flow, Ito said, investments in EAF will continue globally for achieving the goal of carbon neutrality. Exports of scraps from the US and Japan will decrease. New scrap generation from the automotive sector will decrease because the latter will shrink due to the shift to electric vehicles.

China will need prime scrap for which it will import from Japan. So, the supply-demand balance of prime grade scrap will become tighter.

But, obsolete scrap will be in excess because of slow construction activity in Japan which will make EAF mills, which produce only construction steel, decrease their production.

Tokyo Steel will "upcycle" obsolete scrap to achieve goals of its EcoVision by 2050.