Japanese supply of carbon steel electric furnace steel products is much more than shrinking domestic demand. The makers suffer from volatile cost of ferrous scrap and other raw materials and higher energy cost. Some makers try to seek new pass for growth.
Japanese construction investment halved to around 40 trillion yen pear year from the peak under decreasing population. The electric furnace steel makers supply mainly concrete reinforcing steel bar and shapes for the market. The half of capacity of the electric furnace is apparently excess for the demand. Scrap cost keeps high level despite of up and down after international price impacts heavily on the domestic price. The higher cost squeezes profitability of electric furnace steel makers. Higher electricity cost also impacts on the profitability. Japan Iron and Steel Federation estimates electricity hike by Tokyo Electric Power (TEPCO) in April would cost annual 6.6 billion yen for Japanese carbon steel electric furnace steel makers. The higher cost kills Japanese makers’ competitiveness in international market while import increases to Japanese market under high yen rate. Some of the makers try to seek new attempt for better future. Tokyo Steel Manufacturing stopped production at Takamatsu plant in March when the production was a tenth of the peak of monthly 70,000 tonnes. The firm shifts the manpower to profitable flat steel products. The firm withdrew from carbon steel wire rod while the firm transferred the rebar production to Okayama plant. JFE Steel consolidated the 4 electric furnace group companies in the month. New JFE Bars & Shapes tries to realize synergy as one of domestic top makers while the firm expands cooperation with JFE Steel. Topy Industries announced around 28 billion yen of investment to renew steel making shop at Toyohashi plant. The firm tries to improve the integrated production through the major investment. Kyoei Steel decided expansion of steel making shop to rolling line at Vietnamese group company of Vina Kyoei Steel. Kyoei Steel also started joint business with Tam Diep Rolling Mill (TDR) of Vietnam in northern part of Vietnam to launch new integrated production line in 2014. Yamato Kogyo has offshore production bases including Siam Yamato Steel of Thailand, YK Steel of South Korea and Nucor-Yamato Steel of USA. The offshore business supports the group’s profitability. The makers would expand offshore business to follow growing offshore demand especially in Asia while the domestic demand is slow and export condition is severe from Japan. They would take risk for future growth to adjust the strategy in timing and products mix. Some makers focus on high valued products including high tensile products and mechanical joint of rebar to avoid price competition in commodity grade market. Merger of Nippon Steel and Sumitomo Metal Industries could stimulate further consolidation in domestic carbon steel electric furnace steel makers. Major consolidation could occur by integrated steel makers’ group and other makers.