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Japan steel industry targets Asian markets

Keywords: Tags  JISF, steel, Nippon Steel, Sumitomo Metal, Posco, Hebei, China, Taiwan Thailand

TOKYO — As it faces monumental currency, economic, geopolitical and global competitiveness challenges, Japan’s integrated steel industry is banking on innovation in the form of a technology push and targeted investments in Southeast Asia’s "little tigers" to capture growth in a global market long on supply and short on demand.

Members of the Japan Iron and Steel Federation (JISF) International Trade and Cooperation Group—part of JISF’s Market Research and International Economic Affairs division—spoke with AMM in Tokyo this past week on the health of Japan’s key consuming sectors, the pulse of its export markets and the rising tide of steel imports, particularly from South Korea.

The meeting took place as tensions continue to simmer between Japan and China over territorial rights to the Senkaku Islands in the East China Sea and a steady shift in Japan’s market focus and growth strategy to Southeast Asia and away from the West and the United States.

The mega-merger of Nippon Steel Corp. and Sumitomo Metal Industries Inc., officially completed two months ago to create the world’s second-largest steelmaker—putting it ahead of China’s Hebei Iron & Steel Group Co. Ltd. and Baosteel Group Corp. and South Korea’s Posco Ltd.—also weighs heavily on relations between the two countries.

"Exports to Asia are increasing," one of the group’s top executives told AMM in an exclusive interview. "Japan is supplying more high-grade steel as Japanese manufacturers expand their overseas operations in Asia."

Japan exported 31.72 million tons of steel in the first nine months of this year, up a modest 0.2 percent from the same period in 2011. Korea was the leading destination at 6.4 million tons, or 20.2 percent of the total, followed by China (4.7 million tons, or 14.7 percent) and Thailand (4 million tons, or 12.5 percent), and about 2 million tons of high-value material were shipped to the United States.

Indirect exports of steel also are rising, the JISF executive said, citing stepped-up shipments of autos, ships and machinery. "But the growth rate is slowing as production shifts from Japan to other countries," he noted.

Meanwhile, Japanese imports of ordinary steel products have risen dramatically, propelled in large part by the strength of the yen. "Imports from Korea, in particular, are climbing because of capacity expansion there," the executive said, noting a significant jump in material arriving from that country during the fourth quarter of 2011.

Almost two years after a devastating earthquake and tsunami rocked Japan, the country’s steelmakers continue to benefit from a 24.75-trillion-yen ($300-billion) government stimulus program. "Public works civil engineering projects, which had been declining for many years, have been climbing steadily since autumn 2011 because of the earthquake recovery program," the JISF executive said.

Rebuilding efforts also have helped stimulate residential construction in quake-damaged areas, spark internal demand for construction machinery and buoy the nonresidential construction sector, where demand is said to be strong for seismic reinforcement in schools. Even so, "the benefits of this budget are expected to emerge slowly over many years," the executive said.

JISF credits another government program, the so-called "eco-car" subsidy, with spurring domestic auto sales, primarily for light vehicles, in the second half of this year. The subsidy ended Sept. 21, the same month that domestic auto production dropped for the first time in a year.

Auto production could drop further in years to come, JISF acknowledged. "There are many reports of automakers reducing output in Japan and shifting production to overseas because of expectations of mid- and long-term growth in overseas markets and the prolonged strength of the yen," the executive said.

Short-term, however, mills supplying the Japanese auto sector are keeping a close eye on auto output as well as Japanese automakers’ sales in China, given the dispute between the two countries over the Senkaku Islands.

"In September, production of Japanese car manufacturers in China fell about 30 percent and sales fell about 40 percent," the JISF executive said. "Although China accounts for a small share of Japan’s finished auto exports, these exports plunged 40 percent in September from a year earlier to the 15,000-vehicle level."

Production and finished auto export figures for October are not yet available, but in what could be a telling indicator of how tensions are playing out, Japan Airlines Co. Ltd. recently reported that the number of passengers on flights between Japan and China plunged 33 percent in October from the same month last year, while the number of passengers on flights to and from Southeast Asia, including Thailand and Vietnam, climbed 18.3 percent.

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