The cost reduction measures are being implemented in conjunction with the introduction of new facilities and technology.
Osaka-based electric-furnace Nakayama Steel Products will fit scrap metal preheating equipment to the company's electric furnaces in 2018.
The equipment can reduce the amount of electricity an electric furnace consumes by preheating the scraps, the main raw material used in this type of furnace.
"We will trim the cost to manufacture steel products by more than 1,500 yen (US$13.24) per ton," said Nakayama Steel Products President Toshifumi Idesako.
The company hopes the introduction will lead to greater use of cheaper, low-grade scraps.
Although the premium grades containing large amounts of iron account for 60% of the total scraps used for making steel, Idesako aims to reverse that ratio between the premium grades and low grades.
The new equipment will heat scraps at more than 1,000 C and remove impurities, including lead, from them during that process, Idesako said.
As the price of coking coal started shooting up last autumn, blast-furnace steelmakers have increased their purchases of high-grade scraps. This has driven up the market price of the superior grades to a two-year high, now at nearly 30,000 yen per ton.
Technological advances compensate as sharply rising prices cause shift
With oil prices bottoming out, electricity rate hikes have also added to production costs for electric-furnace steelmakers, further driving them toward cheaper low grades.
Sanko Seiko, based in the city of Hiratsuka in Kanagawa Prefecture just south of Tokyo, has turned its attention to low-grade scraps collected from discarded cars. Prices are around 10,000 yen cheaper than high grades because they include impurities such as plastic and glass.
By signing contracts with 10 scrap processors, the company raised the use of such scraps to about 5% of the total.
Although impurities in the scraps lower the yield, the production costs can be cut down by 3,000 yen to 4,000 yen, according to the company.
"We want to build up our technological capability through the active use of new types of scraps and increase our competitiveness," said Sanko Seiko President Shiro Suzuki.
The price differences between low and high grades of coking coal, the main raw material used in blast furnaces, have widened to a record level.
Australia is one of the few countries that supply high-grade heavy coking coals. And with output falling in China, there have been fears over supply shortages.
The January-March 2017 contract price for high-grade coking coal imports in Japan costs US$100 more than low grades, compared to the differences of US$10 to US$20 seen in mid-2016.
Blast-furnace steelmakers have offset the increased use of inferior grades by making technological advances in an effort to grab a larger slice of the global market share.
Some of the coke ovens at Nippon Steel & Sumitomo Metal's plants in Oita and Aichi prefectures can rapidly heat coking coals and enhance the strength of cokes, thereby raising the usage of low-grade coking coals to 50% of the total.
"Compared to steel plants in China and India that heavily rely on high-grade coking coals, Japanese blast furnaces are more competitive in terms of production costs," a securities analyst said.
As it is expected to take more time until the price gap between grades will narrow, devising effective raw material strategies is becoming a major challenge for steelmakers.
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