Japanese steel distributors warn of weakening demand

Japanese steel distributors have joined the growing number of voices warning about the likelihood that domestic steel demand will slow down significantly in the coming quarter.

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Distributors said that while construction demand will continue to improve as reconstruction work continues apace, the level is lower than they had been expecting.

This point was put across during the latest meeting between Japan’s Ministry of Economy, Trade and Industry (Meti) and the Steel Products Distributors’ Assn held every quarter to discuss demand outlook.

Distributors also expressed concerns over a likely drop in demand from other sectors, in particular the automobile and construction machine manufacturing sector.

Japanese car production has soared in recent months on healthy export demand and government subsidies for the purchase of eco-friendly vehicles.

However, with the global economy showing no signs of recovering and the government’s eco-subsidies about to expire, the steel industry is bracing itself for a big slump in demand.

The result is that distributors are unlikely to buy any more steel than they absolutely need to, a senior Meti official told Steel First.

“Distributors will not have reason to increase their inventories with their pessimistic view,” he noted.

“Our view about domestic demand is also not optimistic,” he added.

There have been very real concerns in recent months about the build-up of stock among distributors. H-beam stocks among Nippon Steel’s distributor network, for example, had run for eight consecutive months above the two months’ worth of supply that it deems appropriate.

Nippon Steel recently told Steel First that it now believes the appropriate level is less than that, given the poor outlook for demand.

Nevertheless, there is evidence that distributors have recently been focusing on reducing stockpiles.

Tokyo Steel on Tuesday noted that steel inventory levels have already begun to fall back when it announced that it is leaving its October selling prices unchanged from the current month despite a sharp drop in its scrap prices.