Japanese mills set to see rebound in demand from shipbuilders

Japan’s steelmakers look set to enjoy a rebound in their plate operations after export orders for Japanese-made ships soared by over 240% on the year in April.

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Orders totalled 1.26 million gross tonnes, the second-highest level in tonnage terms since September 2008. In the previous month, orders hit their highest volume since March 2008, at 2.72 million gross tonnes.

The jump will be welcome news for Japan's steel producers, who have seen their sales of shipbuilding steel slump, and is a further sign of the positive effect the weak yen is having on export demand.

“Clearly the latest ship data is good news and shows the positive effects of Abenomics on Japanese manufacturing exports. We expect the data to continue to gradually recover,” one industry official noted, referring to economic policies advocated by Japan’s Prime Minister Shinzo Abe.

Orders for Japanese ships slumped dramatically following the 2008-09 financial crisis and the consequent rise of the Japanese yen, hitting steel producers hard. In 2008, steel orders from shipbuilders totalled 5.7 million tonnes. By last year, orders from the sector had slumped to 4 million tonnes, figures from the Japan Iron & Steel Federation show.

Shipbuilding is the third-largest consumer of Japanese steel after the construction and automotive sectors, although its share of the market has fallen since 2008, from almost 20% to less than 14%.

But the latest figures from the Japan Ship Exports' Assn clearly indicate that the worst may now be over as the 20% drop in the value of the yen against the dollar has radically reduced the price difference between ships built in Japan and those built by rivals in South Korea and China.

According to some estimates, the price difference between Chinese and Japanese-built bulk carriers has been reduced to less than 10%.

However, another industry official said that while the big jump in ship orders was clearly a positive for the steel industry, it would take time for it to translate into actual demand. “There is quite a big time lag and steelmakers probably still need one or two years to see demand fully recover.”

A third official pointed out that the demand outlook for new plate from shipbuilders would largely be determined by delivery schedules and whether shipyards will look to speed up delivery times on existing contracts to make room for the influx of new orders.

“Normally, an increase in ship orders does not directly lead to an immediate increase in steel demand. But any change in shipbuilding speed does affect the demand for steel plates,” he noted.

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