Loss Making Japan Electric Furnace Steels with Higher Cost

Japanese electric furnace carbon steel makers could turn into monthly loss making operation when ferrous scrap price exceeded 30,000 yen per tonne while the products market price is 59,000 yen for concrete reinforcing steel bar and 70,000 yen for H-beam. The gap between selling price and ferrous scrap price gets narrower. Under narrower margin, the makers could make loss in 1 or 2 months. The makers’ profitability gets worse when the market wouldn’t accept higher steel price despite of the recent price hike attempt by the steel makers.

The makers hope they get 30,000-35,000 yen per tonne of margin for rebar and 40,000-45,000 yen for H-beam. An official of major electric furnace steel maker said the margin is critical to secure profitability under higher cost under major production cut and higher cost for subsidiary raw materials. Their shipping price decreases at higher pace than before due to lower level of order backlog under slow demand.

The makers try to increase the steel selling price but the buyers including general contractors resisted the higher price. Rebar makers announced 3,000-5,000 yen per tonne of hike for August order but the market didn’t accept the higher price so far. General contractors cannot pay more for steel products when they try to get building order at lower price under very slow building market. Tokyo Steel Manufacturing considered price hike for H-beam but the firm left the price unchanged for August order under competition with domestic rivals.

The makers try to expand the margin to secure profitability. The basic approach is to reduce the production to low level demand in order to improve price level, to avoid price collapse, while some makers increase the operation rate gradually.