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Total shipments dropped to 6.15 million tonnes, down by 3.1% from levels in September, according to the latest figures from the Japan Iron and Steel Federation (JISF).
However, shipments were down just 0.9% from the corresponding period a year earlier, indicating a recovery in underlying demand.
As in recent months, domestic demand has remained especially strong, while exports have continued to fall, JISF said.
Indeed, exports were at their lowest level in two years in October at 2 million tonnes, down 9.5% from September and down 7.1% year-on-year. This is now the fourth straight month of declines for overseas shipments.
By contrast, domestic shipments were up by 0.3% month-on-month an up 4.2% on the year at 4.15 million tonnes.
Domestic shipments now stand at their highest levels since July and industry officials say they expect demand to remain robust ahead of the consumption tax hike in 2014.
Despite the drop in overall shipments, mills ramped up crude steel output levels, with production rising to its highest level since June, up 2.6% on the month and up 7.8% on the year, at 9.52 million tonnes.
Output of finished steel products totalled 6.32 million tonnes, down by 0.5% from September but up by 4.4% from the same period a year ago.
Stockpile levels, meanwhile, rose to their highest levels since January, increasing by 2.7% from September to reach 6.64 million tonnes.
Inventory levels among steel producers increased for a fourth straight month to 5.46 million tonnes, up 5.4% from the previous month. Stocks now stand at their highest level in at least three years.
In direct contrast, those held by dealers fell to a new multi-year low, dropping by 8.51% from September to just 1.17 million tonnes.
Stockpiles earmarked for export rose by 10.2% month-on-month to 1.04 tonnes, while those set aside for the domestic market were up 1.4% over the same period at 5.6 million tonnes
The inventory ratio, which measures stockpiles against shipments, continued to stay above the psychological barrier of 100%, with October’s figure reaching 108%.
However, with demand at home expected to improve yet further in the months to come, mills are becoming progressively less worried about such temporary spikes in the ratio.
Japanese steel shipments continued to fall in October, as export volumes plunged, while producers continued to ramp up crude steel output.