JAPAN CRISIS: Iron, steel, coal markets evaluating quake impact
Singapore (Platts)--14Mar2011/107 am EDT/507 GMT
The ferrous sector was Monday evaluating the likely impact that closures
of several Japanese steel mills, car plants and power plants would have on
steel production and consumption, as well as on steelmaking raw materials such
as iron ore and coking coal.
The scale of the disruptions on Japan's steel production and consumption
were starting to come into focus. In terms of steel production, as of Monday
lunchtime, only two Japanese mills still had their operations suspended,
namely Sumitomo Metals Industries' Kashima Works and Nippon Steel's Kamaishi.
However, power rationing across eastern Japan will likely further impact
production in coming days, a Tokyo trader added. This was confirmed by JFE
Steel, which has kept its rolling and processing lines offline to save power.
Macquarie Commodities Research Friday estimated that 15 million-18
million mt of steel production could be impact in the crisis, adding that
"given the large steel overcapacity globally, much of the reduction in
Japanese steel output will be made up for elsewhere."
On the steel demand side, Japanese carmakers were the most obvious
casualty, with several plants closed, and stocks of cars earmarked for exports
damaged by the tsunami. Steel demand should rise when reconstruction begins,
but this is a longer-term prospect, market sources said.
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"Steelmakers will be checking the new supply and demand situation and
their shipping schedules, and only then will they be able to make decisions
regarding their raw material purchases," one Japanese trader said.
"We expect some of the Japanese customers to declare force majeure [on
coal purchases], an Australian coal mining executive told Platts Monday
morning. Sources cited power and transport disruptions as the key reasons for
the likely force majeure declarations.
The physical iron ore market has yet to show any immediate reaction to
the situation in Japan, traders in Singapore and Beijing said.
Buying of seaborne iron ore by steelmakers in China, which determines
benchmark prices used to price long-term contracts, has been anemic over the
past week on weak steel demand.
A shipbroker in Singapore said iron ore deliveries into Japan could slow
to a halt in the short term. "The long and short of the Japan situation is
that infrastructure is a major problem on the eastern seaboard," he said.
Fortescue Metals Group, Australia's third-biggest iron ore exporter, has
not seen iron ore shipments to Japan immediately affected by the crisis, a
person familiar with the matter said.
Thermal and coking coal contract negotiations, which were under way as
the earthquake struck, will inevitably be delayed as mills turn their
attention to operational issues. JFE Steel will reportedly be cancelling all
meetings with its coal suppliers this week, a source reported. This include
sensitive talks with coking coal behemoth BHP Billiton-Mitsubishi Alliance
regarding a possible shift to monthly pricing.
Thermal coal demand is likely to be reduced because of outages at several
Japanese power plants.
Macquarie estimated Friday that Japanese seaside inventories amounting to
2 million mt of iron ore and 1 million mt of metallurgical coal may have to be
--Julien Hall, firstname.lastname@example.org
Keith Tan, email@example.com