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Japan Metals Report Q2 2010
Business Monitor International, March 2010, Pages: 55
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.
Japanese steel and aluminium producers witnessed a bottoming out of the market in Q409 as demand from transportation picked up and the decline in exports eased. However, the latest Japan Metals Report warns that the outlook continues to be negative due to weak demand from the automotive, electronics, construction and housing industries.
In 2009, Japan’s crude steel output plummeted 26.3% year-on-year (y-o-y) to 87.5mn tonnes, the lowest level since 1969 and lower than the 88mn tonnes (down 25%) we had forecast the previous quarter. Although output experienced a 9.9% quarter-on-quarter (q-o-q) upturn in Q409, it was up just 0.8%. compared with Q408. Given that Q408 was the first quarter after the collapse in both domestic and export markets in the wake of the global financial crisis, the performance in the final quarter of 2009 was mediocre at best. Exports to emerging Asia did not fare as poorly as those to Europe, North America and Australia, with a 3.0% decline in shipments to China, a 5.9% rise in exports to South Korea and an 18.9% rise in exports to Vietnam.
Orders from steel-consuming industries fell 30% y-o-y to 37.6mn tonnes, according to the reports estimates. Domestic building construction has halved in a sluggish economy where public spending is tight. Orders from the construction sector declined 26.1% y-o-y to 9.5mn tonnes, while orders from manufacturing fell 29.8% to 18.2mn tonnes. The automotive industry reduced orders by 35.5% to 7.3mn tonnes and shipbuilding reduced orders by 2.8% to 5.5mn tonnes. Recent shipbuilding orders seem weak, but actual delivery volume looks strong. Dealers reduced their orders by 33.6% to just under 10mn tonnes. Meanwhile, JFE Holdings has predicted a weak Japanese construction market in 2010, but expects steady demand for its high-end steel that is used in cars and manufacturing.
Primary aluminium output was down 22.5% y-o-y to 4,300 tonnes in 10M09, while secondary aluminium production was down 42.8% y-o-y to 530,400 tonnes. Aluminium flat rolled production was down 25.7% to 862,600 tonnes and extruded production was down 27.8% to 547,500 tonnes. Meanwhile, Japanese demand for aluminium amounted to 2.63mn tonnes in 10M09, down 27.9% y-o-y, the second consecutive year of decline. Japanese shipments of aluminium products amounted to 1.7mn tonnes in 2009, down 21.7% y-o-y to the lowest level since 1986. The recovery is looking mixed depending on the sector. In 10M09, the largest market for Japanese aluminium was transportation, representing 35% of demand. Sales to the transportation sector plummeted 38.4% y-o-y to 927,100 tonnes, but showed some upside in H209.
The report estimates that domestic finished steel consumption fell 23.5% y-o-y to 59.9mn tonnes in 2009, but will rise 11.4% in 2010 to 66.7mn tonnes and should reach 79.8mn tonnes by 2014, taking consumption back to pre-recession levels. If domestic private consumption fails to pick up, then Japan will be more reliant on exports to Asian markets, which showed signs of recovery in H209 as a result of the country’s massive stimulus spending. However, there are two risks for Japan on this front. Firstly, a double-dip slump in China – as a result of excessive stimulus which would need to be reined in – would naturally weigh on Japan. Secondly, the strength of the yen, with the currency soaring to a seven-year high in Q309, could sap the tentative rebound in exports.
We do not expect output to return to pre-crisis levels until 2014 at the earliest. Crude output should grow 15.3% to 100.9mn tonnes in 2010, but growth rates should slow with production reaching 114.8mn tonnes. However, some respite for the larger manufacturers has been forecast, at least in the shorter term, with the activation of automotive and electronics factories in the country, which should benefit more high-profile steelmakers such as JFE Holdings Inc and Nippon Steel Corp. Although this might offer relief within the sector in the short term, there are concerns that this momentum will be slowed due to oversupply from nations such as China once stability is restored to the markets. As companies begin to restock after aggressively altering inventories to cope with a plunge in global demand, with manufacturers having significantly increased output over the past quarter, it is clear that the Japanese sector is keen to take advantage of any spike in demand.
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