Japan Steel Makers Should Focus on Inventory Reduction in 3Q 2011

It should be the most important theme for Japanese steel makers to reduce domestic steel inventory and raise the selling price of steel products for July-September in order to realize profit rebound along steel demand recovery expected to start in and after October-December. One major steel makers’ official said inventory control is difficult when domestic demand is recovering and steel import is increasing. However, Japanese steel makers should focus on cautious production balanced with actual demand in order to way out from post-disaster confusion and return to the upward management conditions of pre-disaster.

Domestic inventory of hot rolled steel sheet, cold rolled steel sheet and surface treated steel sheet was 4.2 million tonnes at the end of May while carbon steel products inventory was 5.63 million tonnes. Steel sheet inventory hit the highest volume since March 2009 and carbon steels hit the highest since December 2008. Mr. Masaki Koito, steel division chief of Ministry of Economy, Trade and Industry (METI), alerted steel makers should hurry to decrease market inventories to the moderate level.

METI forecasts of Japanese demand for steel products would increase by 7.1% to 23.52 million tonnes for July-September from April-June. On the other hand, crude steel production is forecasted to increase by 1.5% to 26.92 million tonnes since inventory adjustment is expected. One integrated steel maker’s official suggested inventory adjustment might total 1 million tonnes, 500,000 tonnes by integrated steels mainly for steel sheet and 500,000 tonnes by electric furnace steels mainly by regular maintenance in summer. Steel sheet inventory could decrease to 3.7 million tonnes and inventory of carbon steel products would also lower to the moderate level by these output cuts.

Japanese car production is expected to reach 2.5 million sets in and after October-December. Manufacturing industry’s productive activities are expected to recover. Meanwhile, steel demand could increase for reconstruction in disaster areas by Japanese government’s additional budget. In Asian steel market, Chinese output increase is likely to slow down by electric power shortage and thus Japanese steel export could improve.

Japanese steel makers expect their sales volume could recover along better market situations in and after October-December. Japanese integrated steel makers declared losses for January-March. Electric furnace steel makers also lowered their profits for January-March.