The news that China may publish the long-awaited national guidelines on steel scrap standards by this year and the possibility that this may see the current restrictions on scrap imports loosened – has attracted a lot of attention in Japan.

Scrap consumers, in particular Japanese steel producers of electric arc furnaces, have expressed fears that large volumes of scrap leaving Japan may reduce availability on the domestic market and that prices may rise as a result.

Currently, the volume of scrap imports into China is determined by monthly quotas allocated by a state-backed organization through auction. In its September allocation, China allocated allowances for ferrous scrap for a total of only 2,610 tons and did not grant allowances in August.

While Japanese traders may be excited about the prospect of a wider opening of China’s huge scrap iron market, Japanese mini-factories are very concerned, given China’s massive influence in global steel commodity markets such as iron ore.

“We are concerned that Japanese scrap prices are influenced by China’s strong demand,” an Osaka official admitted. “We may have to pay more for our scrap – to make sure we have sufficient supply locally. This may force us to raise product prices to ensure that the metal will spread properly in the future,” he warned.

Currently, about 80 percent of domestically produced scrap iron in Japan is consumed internally.

Data from the Japan Iron and Steel Recycling Institute (JISRI) for fiscal year 2019 (end of March 2020) show that the volume of steel scrap handling in Japan was 25.67 million tons, down 11.3% from the previous year, while crude steel production reached 23.53 million tons, down 9.6% from the previous year.

For several decades Japan, once a massive importer of ferrous scrap (mainly from the United States), has been a net exporter of scrap – with South Korea traditionally the largest buyer, but the situation is changing, which is why new Beijing regulations governing the sector in China are being closely monitored in Japan.