Nippon Steel Mulls Additional Production Cut

Japanese steel demand decreases sharply after financial crisis. Nippon Steel started study for additional production cut by reducing the utilization of iron and steel making, hot rolling and downstream operations while the firm already announced more than 2 million tonnes of production cut in the second half year to March 2009 from original plan. The firm tries to figure out the actual demand level through analysis of users’ production plans.

The firm focuses on steel production and shipment cut to improve the supply balance. The firm sees the apparent steel demand is lower than actual demand due to inventory adjustment and uncertainty. The firm expects the production level would recover to meet actual demand level when the users’ inventory adjustment would finish in and after January-March period.

Offshore steel price plunges especially for commodity grade products while domestic electric furnace steel makers adjust the pricing level to lower ferrous scrap market. However, Nippon Steel decided not to adjust the steel pricing now when the price down couldn’t contribute to higher sales volume in the confused market condition.

Nippon Steel concerns domestic hot, cold and coated sheet steel inventory could exceed record 4.66 million tonnes due to slow demand while the inventory was 4.47 million tonnes at end of October. Nippon Steel expects Japanese steel makers would expand the production cut while the integrated steel makers announced 5 million tonnes cut and electric furnace steel makers plan 30-50% cut in the second half year.

Nippon Steel expects Japanese automobile production could decrease to around 10 million units in fiscal 2008 ending March 2009 from 11.79 million units in fiscal 2007. The firm forecasts knockdown sets output could decrease to 7 million units from 8.5 million units. The automobile production decreases in the second half year, especially in January-March period while the production was higher in the first half than the level in same period of 2007.

Nippon Steel recognizes Japanese major machinery makers expand the production cut to around 30% when machine tool makers’ order receipt dropped by 40% in October and by 60% in November from a year earlier. The firm warns shipbuilding demand could decrease in future due to more than 80% drop for export contract in October and November while the building activity is firm for a while. The firm expects domestic construction activity should decrease when major building plans are delayed and canceled.

Nippon Steel plans relining of no.1 blast furnace at Oita works to stop the operation in March 2009 and to restart the furnace in May 2009. However, the firm considers rescheduling the relining to stop operation longer for further production cut.