Japanese domestic steel consumption expected to rise

Japanese domestic steel consumption is expected to remain healthy in the current quarter, although mills will face considerable pricing pressure and falling exports, according to Nippon Steel.

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Domestic consumption is projected to increase to 15.67 million tonnes in the July-September period from 15.53 million tonnes in the previous quarter largely on a continued rebound in demand from the construction sector, which will more than offset a decline in orders from the manufacturing sector.

Demand from the construction sector is likely to increase to 5.03 million tonnes from 4.81 million tonnes as reconstruction of the country’s northeast continues to gather pace, said Nippon Steel.

That means consumption from the sector in the first half of the fiscal year starting April 1 will rise to 9.84 million tonnes from 9.1 million tonnes in the corresponding period a year earlier.

On the other hand, demand from the industrial sector will fall to 7.44 million tonnes from 7.51 million tonnes in the previous quarter, largely due to falling demand from shipbuilders, who are expected to buy up 1.07 million tonnes of steel in the current quarter compared with 1.17 million tonnes in the previous one.

As a result, orders for the first half will decline from 2.87 million tonnes a year ago to just 2.24 million tonnes.

Orders from car makers will remain flat at 2.98 million tonnes, as will demand for speciality steel products at 3.2 million tonnes.

Both have had a strong run after last year’s earthquake decimated Japanese industrial production: auto steel orders in the first half will be 920,000 tonnes higher than in the same period a year ago, while speciality steel orders will be up by 280,000 tonnes.

Demand from both industrial and electrical equipment manufacturers is also expected to remain robust, the former increasing in the current quarter to 1.33 million tonnes from 1.3 million tonnes and the latter to 760,000 tonnes from 750,000 tonnes.

However, while domestic consumption is likely to remain robust, the outlook for exports is bleak, says Nippon Steel. It is projecting exports to drop to 10.15 million tonnes in the current quarter from 10.6 million tonnes in the previous period as mills struggle to cope with a strong yen, falling prices and weakening regional demand.

To compound the problem, cheap imports are expected to continue to flood the domestic market, rising to 1.65 million tonnes from 1.6 million tonnes. For the first half, imports will total 3.25 million tonnes versus 2.9 million tonnes a year ago.

All this is expected to put considerable pricing pressure on mills. Nippon Steel is projecting its average selling price to drop to ¥79,000 ($1,009) per tonne in the current quarter, down ¥1,000 from the last quarter and ¥10,800 lower on prices it enjoyed a year ago.

The story is similar for JFE Steel. It expects its average selling price in the current quarter to drop to ¥71,000 per tonne from last quarter’s ¥75,700 per tonne.

Sumitomo Metal Industries is expecting its average selling price to rise slightly to ¥95,000 per tonne from ¥94,700 per tonne, but that will be entirely due to rising export prices for its high-end pipe and tube products: it is projecting its domestic prices to fall by ¥1,600 to ¥96,000 per tonne.

All three companies have said that they will look to aggressively cut their operating costs through greater use of cheaper raw materials and other measures.

But with demand from the auto industry in particular expected to decline significantly later on in the year after the government ends its eco-subsidies on new vehicles, they will be praying that export prices and demand will rebound in the final quarter of the year and that the yen will lose some of its strength.