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Japan Metals Report Q3 2009Product Type: Market Research ReportPublished by: Business Monitor International Published: August 2009 Product Code: R302-7529 Description BMI’s latest Japan Metals Report states that while the country’s steel and aluminium industries hadpassed their low point by mid-2009, recovery was only being felt in some segments as others continuingto languish in the doldrums.In H109, leading Japanese steelmakers Nippon Steel Corporation and JFE were operating at 55-66%capacity due to a cut in orders. The Japan Iron and Steel Federation (JISF) reported that Japan’s crudesteel output in May 2009 fell by 38.5% year-on-year (y-o-y) to 6.49mn tonnes, the eighth successivemonth of decline. However, increased demand from the automotive and household electronics industrieshelped raise output 13.1% over April. BMI does not believe this necessarily signals the beginning of asustained recovery and is more likely related to restocking. The market is highly volatile and steelmakersare having to respond on a day-to-day basis. Nevertheless, BMI believes that no further cuts inproduction are likely beyond June 2009 and that stocks had been depleted enough to prevent over-supplyand further deterioration in prices. The question is when the Japanese steel industry will lift itself out ofthe trough. The signs are weakly positive, with orders from domestic steel consumers up 19.1% monthon-month (m-o-m) to 5.04mn tonnes in April, although it was still down 33% y-o-y. Export marketsappeared to be the key drivers of growth in the month. While total domestic consumption grew 4.8%m-o-m to 2.78mn tonnes (down 42.5% y-o-y), exports grew by a far higher rate of growth at 40.7%m-o-m to 1.76mn tonnes (down 34.6% y-o-y). The automotive sector fuelled growth in April, but demand from the construction and shipbuildingindustries was lacklustre. In April, steel products orders booked by the construction sector in Japan fell by0.2% m-o-m to 764,000 tonnes (down 35.8% y-o-y), while orders from the automotive sector increased32.2% m-o-m to 452,000 tonnes (down 55.1% y-o-y) and shipbuilding industry orders fell 5.1% m-o-m to452,000 tonnes (down 3.5% y-o-y). In terms of outlook for 2009, in response to the signs of rising exports in some segments BMI has revisedcrude steel output from 74.3mn tonnes (down 37.4% y-o-y) to 77.9mn tonnes (down 34.4%), withmonthly output likely to average 6.87mn tonnes in H2, compared to 6.05mn tonnes in H1. Growth willaccelerate from 2010, when export growth is combined with rising Japanese domestic demand. Anexpected consolidation in capacity in China, with the closure of inefficient mills, will help preventregional over-supply and ensure the market remains tight. But it will take until 2013 before the industry isback to where it was in 2008, with crude output exceeding 118mn tonnes. In the aluminium sector, by end-June 2009, aluminium stocks had fallen to what BMI regards as a morefavourable level at around 200,000 tonnes, largely due to a fall in imports rather than an increase indemand. However, Japan’s aluminium product shipments rose for the second month running in April,suggesting an improvement in business conditions, although the recovery was still weak compared to2008. China’s overseas purchases of the metal surged to a record in April while its aluminum exports toAsia slumped this year. A further sign of growing demand for aluminium has come from some industryofficials who have signalled that they would begin ordering the metal for the first time this year in Q309. Another sign of a tentative recovery in the Japanese aluminium market came in reports by Bloomberg inJune that producers were increasing the premiums charged for Japanese aluminium consumers from afive-year low of US$55-60 per tonne above the London Metals Exchange (LME) price in Q209 toUS$68-75 in Q309. Even when demand returns, BMI does not expect average run rates to exceed 70% over the medium term,which means that aluminium smelting output is likely to run at around 750,000 tonnes per annum over themedium-term. We do not envisage Japanese demand for new cars and houses, which had previouslydriven up aluminium consumption, to return to pre-recession rates over the medium-term. Japanesesecondary aluminium alloy smelters are increasing seeking to export alloys to China, with Chinese spotdomestic prices holding firm in Q209 compared with Japanese prices. Table of Contents
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