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Business

Japan tapping China's potential as scrap iron supplier

Tokyo Steel Manufacturing breaks with tradition, buys scrap from China

If China becomes a large exporter of scrap iron, it will shake up the steel industry.

TOKYO -- Tokyo Steel Manufacturing, Japan's largest independent maker of electric-furnace steel, has begun importing scrap iron from China, expecting the country to become a key supplier.

Between May and June, the company bought about 3,000 tons of scrap for its plant in Kitakyushu, Fukuoka Prefecture, on the southern island of Kyushu, on a trial basis. It is believed to be the first major Japanese electric-furnace steelmaker to import scrap iron from China. Most Japanese producers obtain scrap metal from domestic sources.

Tokyo Steel unloaded about 850 tons of scrap in mid-May, and more than 2,000 tons on June 2, from a cargo ship docked near the plant. The Kitakyushu plant produces H-beams, heavy plates and other construction materials.

According to a company spokesman, the procurement cost "did not differ significantly from that procured domestically." The company will check the quality of the Chinese scrap iron before increasing imports from the country.

Although the Kitakyushu plant was selected for the trial run because of its proximity to China, Tokyo Steel is seeking to do the same at other plants -- one in Tahara, Aichi Prefecture and another in Kurashiki, Okayama Prefecture.

There are two methods of producing steel: melting down iron ore and other raw materials in blast furnaces, or feeding scrap iron into electric furnaces. Electric-furnace steelmakers including Tokyo Steel uses the latter approach, melting down scrap iron purchased from local suppliers. Generally, local procurement is cheaper. Tokyo Steel gets more than 95% of its scrap from domestic sources.

Electric-furnace steelmakers in China, too, mostly use domestic scrap, but others use imported scrap from Japan and elsewhere. The Chinese government is trying reduce excess steel production. This has created a glut of scrap, leading steel producers to export it.

In addition to Japan, South Korea, Vietnam and other Asian countries are believed to be importing Chinese scrap.

A gold mine of scrap

China produces half the world's crude steel, and the vast amount of cars and buildings it makes has created a mountain of steel materials. It has a hoard of more than 7 billion tons of materials, estimates show, five times as much as Japan. Once the country's appetite for infrastructure and autos is sated, it probably will be unable to consume all the scrap it produces. This may lead it to export large quantities of the material.

Japan is believed to have 1.3 billion to 1.4 billion tons of steel materials in reserve. The country thus looks to have a stable supply available for the next few decades. But Tokyo Steel has decided that it should prepare for a rise in the amount of scrap supplied from China by assessing its quality. 

One long-standing challenge facing Japanese electric-furnace steelmakers is that it takes a long time to pass along changes in scrap prices into their own products. 

The global steel material market is sensitive to market trends in China, due to its huge production capacity. If it becomes a big scrap iron exporter, it may destabilize the scrap market as well.

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