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JAPAN CRISIS: Iron, steel, coal markets evaluating quake impact

Highlights

The ferrous sector was Monday evaluating the likely impact that closuresof several Japanese steel mills, car plants and power plants would have onsteel production and consumption, as well as on steelmaking raw materials suchas iron ore and coking coal.

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The scale of the disruptions on Japan's steel production and consumptionwere starting to come into focus. In terms of steel production, as of Mondaylunchtime, 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 impactproduction in coming days, a Tokyo trader added. This was confirmed by JFESteel, which has kept its rolling and processing lines offline to save power.

Macquarie Commodities Research Friday estimated that 15 million-18million mt of steel production could be impact in the crisis, adding that"given the large steel overcapacity globally, much of the reduction inJapanese steel output will be made up for elsewhere." On the steel demand side, Japanese carmakers were the most obviouscasualty, with several plants closed, and stocks of cars earmarked for exportsdamaged by the tsunami. Steel demand should rise when reconstruction begins,but this is a longer-term prospect, market sources said.

"Steelmakers will be checking the new supply and demand situation andtheir shipping schedules, and only then will they be able to make decisionsregarding their raw material purchases," one Japanese trader said.

"We expect some of the Japanese customers to declare force majeure [oncoal purchases], an Australian coal mining executive told Platts Mondaymorning. Sources cited power and transport disruptions as the key reasons forthe likely force majeure declarations.

The physical iron ore market has yet to show any immediate reaction tothe situation in Japan, traders in Singapore and Beijing said.

Buying of seaborne iron ore by steelmakers in China, which determinesbenchmark prices used to price long-term contracts, has been anemic over thepast week on weak steel demand.

A shipbroker in Singapore said iron ore deliveries into Japan could slowto a halt in the short term. "The long and short of the Japan situation isthat infrastructure is a major problem on the eastern seaboard," he said.

Fortescue Metals Group, Australia's third-biggest iron ore exporter, hasnot seen iron ore shipments to Japan immediately affected by the crisis, aperson familiar with the matter said.

Thermal and coking coal contract negotiations, which were under way asthe earthquake struck, will inevitably be delayed as mills turn theirattention to operational issues. JFE Steel will reportedly be cancelling allmeetings with its coal suppliers this week, a source reported. This includesensitive talks with coking coal behemoth BHP Billiton-Mitsubishi Allianceregarding a possible shift to monthly pricing.

Thermal coal demand is likely to be reduced because of outages at severalJapanese power plants.

Macquarie estimated Friday that Japanese seaside inventories amounting to2 million mt of iron ore and 1 million mt of metallurgical coal may have to bedeemed unusable.

--Julien Hall, julien_hall@platts.com
Keith Tan, keith_tan@platts.com
MelvinYeo, melvin_yeo@platts.com