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Japan Metals Report Q1 2011
Business Monitor International, Jan 2011, Pages: 64
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 appreciation of the yen has become the chief challenge to Japanese exporters of metals products, with this latest Japan Metals Report from BMI anticipating a move in capacities to China, India and SoutheastAsia as producers seek to boost competitiveness.
In 2010, the Japanese metals industry faced a squeeze on margins due to rising raw material prices and sustained low prices for mill products. In 2010, crude steel output grew 25.5% year-on-year (y-o-y) to109.9mn tonnes, 10mn tonnes more than we forecast. By Q410, Nippon Steel and JFE Holdings hadmaintained high run rates of 90% compared with 70% for US steelmakers, though their profits remainedat around 40% of the peak levels seen before the global economic crisis hit.
Japan’s iron and steel exports saw slow growth in the first 10 months of 2010 as the yen depressed external sales. Total exports fell 0.1% to 36.12mn tonnes. Pig iron exports dropped by 31.0% y-o-y to33,637 tonnes as more iron was consumed by the domestic steel industry. Semi-finished exports fell 1.3%y-o-y to 4.27mn tonnes, while ordinary steel products fell 0.4% to 24.44mn tonnes. There were somedifferences between the performance of ordinary steel product exports, with wire rod posting growth of2.5% to 415,575 tonnes and hot-rolled wide strip declining 1.9% to 7.60mn tonnes. Speciality steelexports grew 2.1% y-o-y to 6.48mn tonnes.
The Japanese aluminium industry has exhibited stronger growth than steel in H210, helped by the solid performance of the packaging sector, although it has suffered from the withdrawal of subsidies for ecofriendlycars. Exports were buoyant in 2010, however, with growth sustained throughout the year. In thefirst nine months of 2010, primary aluminium production was down 9.3% y-o-y to 3,500 tonnes whilesecondary aluminium output grew 33.2% y-o-y to 613,600 tonnes. Mill products also grew rapidly, withflat rolled output rising 25.6% y-o-y in 9M10 to 959,600 tonnes, and extruded products rising 18.0% y-oyto 568,100 tonnes. In the same period, domestic shipments of aluminium products grew 19.7% to804,100 tonnes while exports of aluminium plates, sheets and strip – the largest sub-segment – grew47.4% y-o-y to 179,800 tonnes. Key end-use markets include transportation, in which demand was up54.9% y-o-y to 121,600 tonnes, and foil products where demand rose 30.0% y-o-y to 102,400 tonnes. Theonly segment to report a fall in demand was the food segment, which shrank 2.2% to 326,100 tonnes.
A significant risk factor is the slowing effect of government stimulus programmes across Asia, plus the effects of slowing growth and the danger of a double-dip recession in Europe and North America that willhave both direct and indirect implications for Japanese metals exports. Asian markets represent around85% of total exports and while the regional market is strong, there are fears of contagion from Europe andthe US, on which China is dependent for exports. Additionally, financial market developments and thedanger of deflation are constant risks to growth in the Japanese economy.
Runaway demand in China for iron ore and moves by mining firms toward more profitable, short-term pricing systems could undermine Japanese steelmakers’ bottom lines. Iron ore prices are set to remainhigh in 2011, meaning the Japanese steel industry will face increasingly expensive raw materials – coststhat will need to be passed on to consumers.
In the long run, Japan’s domestic steelmakers will face limited growth due to the mature nature of the market, increased competition from emerging markets and Chinese and Korean producers’ efforts tomove up the value chain into production that has long been Japanese territory. In response, capacity islikely to move abroad to low-cost countries such as Thailand, India and China, although this riskscontinuing over-supply in regional and global markets and depressing margins. In terms of technology,Japanese steelmakers still have the edge, at least over the medium term.
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