Japan Quarterly Raw Steel Output to Hit High after Lehman Shock

Japanese raw steel output will increase by 2.6% to 28.398 million tonnes in January-March from October-December, announced by Ministry of Economy, Trade and Industry on Wednesday. The production is 5.6% higher than estimated demand in January-March and reaches the highest level after Lehman shock. Higher steel export lifts the production level while special steel production increases higher rate due to strong demand for automobile. METI warns the steel makers should be cautious on status of demand condition when domestic steel inventory is still high while the risk increases in offshore market due to international competition along with raw materials supply concern from heavy rain damaged Australia.

The production increases mainly due to higher export shipment in January-March while domestic makers recover the production from trouble in October-December along with higher production for inventory building preparing for blast furnace maintenance in April-June. The production increases by 730,000 tonnes from October-December when the integrated steel makers plan 940,000 tonnes higher production mainly for sheet steel in the quarter while the electric furnace steel makers plan to reduce the output by 210,000 tonnes.

The production of steel products increases by 5.1% to 24.852 million tonnes in January-March from October-December. The production increases by 8.4% to 9.196 million tonnes for export, which is the highest level after Lehman shock, while the production for domestic market is flat. The makers plan to increase production of carbon steel sheet and plate steel for higher priced Asian market and active shipbuilding and energy sectors. The special steel makers plan to increase the production of high tensile steel and structural alloy steel.

METI sees potential offshore market risk when Chinese production cut could be narrower than before and South Korean makers ramp up expanded capacity. METI also expects Japanese steel makers focus on inventory adjustment when the stock level is still high even when the stock is usually relative higher toward fiscal yearend in March.

METI expects Japanese steel makers are cautious on actual demand level when some buyers try to build inventory for construction steel products with expectation for higher price due to higher steel making raw materials cost. METI warns Japanese steel makers should prepare for potential shortage of raw materials when recovery of Australian coal mining operations could take more time from heavy rain damage.

METI also announced Japanese special steel production will increase by 4.0% to 5.419 million tonnes in January-March from October-December. The volume represents 96% level of April-June 2008 when the production hit recent peak before Lehman shock. The special steel makers plan to increase the production for export widely to meet strong demand for automobile and energy industry while the production for domestic market is flat.

The special steel makers plan to increase the production by 3.1% to 624,300 tonnes for high tensile steel products in January-March from October-December while they plans to reduce the structural alloy steel output by 2.7% to 710,000 tonnes and to keep the mechanical carbon steel output at 1.014 million tonnes. They plan to increase the output for export by 21.3% to 870,900 tonnes for high tensile steel, by 2.8% to 313,300 tonnes for structural alloy steel and by 4.3% to 310,500 tonnes for stainless steel.