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Japan Metals Report Q3 2009
Business Monitor International, Aug 2009, Pages: 45
The Japan Metals Report provides industry professionals and strategists, corporate analysts, metals associations, government departments and regulatory bodies with independent forecasts and competitive intelligence on Japan's metals industry.
The latest Japan Metals Report states that while the country’s steel and aluminium industries had passed their low point by mid-2009, recovery was only being felt in some segments as others continuing to languish in the doldrums.
In H109, leading Japanese steelmakers Nippon Steel Corporation and JFE were operating at 55-66% capacity due to a cut in orders. The Japan Iron and Steel Federation (JISF) reported that Japan’s crude steel output in May 2009 fell by 38.5% year-on-year (y-o-y) to 6.49mn tonnes, the eighth successive month of decline. However, increased demand from the automotive and household electronics industries helped raise output 13.1% over April. The author does not believe this necessarily signals the beginning of a sustained recovery and is more likely related to restocking. The market is highly volatile and steelmakers are having to respond on a day-to-day basis. Nevertheless, the author believes that no further cuts in production are likely beyond June 2009 and that stocks had been depleted enough to prevent over-supply and further deterioration in prices. The question is when the Japanese steel industry will lift itself out of the trough. The signs are weakly positive, with orders from domestic steel consumers up 19.1% month-on-month (m-o-m) to 5.04mn tonnes in April, although it was still down 33% y-o-y. Export markets appeared to be the key drivers of growth in the month. While total domestic consumption grew 4.8% m-o-m to 2.78mn tonnes (down 42.5% y-o-y), exports grew by a far higher rate of growth at 40.7% m-o-m to 1.76mn tonnes (down 34.6% y-o-y).
The automotive sector fuelled growth in April, but demand from the construction and shipbuilding industries was lacklustre. In April, steel products orders booked by the construction sector in Japan fell by 0.2% m-o-m to 764,000 tonnes (down 35.8% y-o-y), while orders from the automotive sector increased 32.2% m-o-m to 452,000 tonnes (down 55.1% y-o-y) and shipbuilding industry orders fell 5.1% m-o-m to 452,000 tonnes (down 3.5% y-o-y).
In terms of outlook for 2009, in response to the signs of rising exports in some segments the author has revised crude steel output from 74.3mn tonnes (down 37.4% y-o-y) to 77.9mn tonnes (down 34.4%), with monthly output likely to average 6.87mn tonnes in H2, compared to 6.05mn tonnes in H1. Growth will accelerate from 2010, when export growth is combined with rising Japanese domestic demand. An expected consolidation in capacity in China, with the closure of inefficient mills, will help prevent regional over-supply and ensure the market remains tight. But it will take until 2013 before the industry is back to where it was in 2008, with crude output exceeding 118mn tonnes.
In the aluminium sector, by end-June 2009, aluminium stocks had fallen to what the author regards as a more favourable level at around 200,000 tonnes, largely due to a fall in imports rather than an increase in demand. However, Japan’s aluminium product shipments rose for the second month running in April, suggesting an improvement in business conditions, although the recovery was still weak compared to 2008. China’s overseas purchases of the metal surged to a record in April while its aluminum exports to Asia slumped this year. A further sign of growing demand for aluminium has come from some industry officials who have signalled that they would begin ordering the metal for the first time this year in Q309.
Another sign of a tentative recovery in the Japanese aluminium market came in reports by Bloomberg in June that producers were increasing the premiums charged for Japanese aluminium consumers from a five-year low of US$55-60 per tonne above the London Metals Exchange (LME) price in Q209 to US$68-75 in Q309.
Even when demand returns, the author does not expect average run rates to exceed 70% over the medium term, which means that aluminium smelting output is likely to run at around 750,000 tonnes per annum over the medium-term. We do not envisage Japanese demand for new cars and houses, which had previously driven up aluminium consumption, to return to pre-recession rates over the medium-term. Japanese secondary aluminium alloy smelters are increasing seeking to export alloys to China, with Chinese spot domestic prices holding firm in Q209 compared with Japanese prices.
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