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Steel Sector: Japanese problems mount
November 2001
The Japanese steel sector is facing a turbulent period ahead. Domestic consumption is slipping. Export markets are fading. Producer inventories are far too high. Crunch time has arrived. Action is at last being promised. Steel output will fall this year and next.
Most of the major blast furnace steelmakers have announced deep cuts in crude steel production in the coming months. The figure for the final quarter is likely to fall to near 24.8 million tonnes, giving a year end figure of just below 103 million tonnes - a reduction of 3.5 percent.
These raw steel output curbs are essential. Mill inventories have been building throughout the past eight months. In the January to August period, total steelmaking fell by 700,000 tonnes (1 percent), year on year. Over the same time span, shipments of ordinary rolled steel products dropped by 4.7 percent. Clearly, action was needed to remedy the situation and minimise the costs.
It is likely that the stockpiles will not be brought back to realistic levels until the middle of 2002 at best. The economy is in poor shape and is likely to fall into recession soon. In recent months domestic orders for steel products have been reported at a figure 7.5 percent below the equivalent period in 2000.
MEPS can see a few bright spots but not enough to avoid a substantial reduction in Japanese steel manufacturing next year. The most likely outturn is for a crude steel output in 2002 of approximately 97.5 million tonnes - down by 5 percent on this year's figure. A decrease to 95 million tonnes is a distinct possibility if the global scene worsens.
Currently, the low prices and oversupply in Japan are keeping imports at bay. They are likely to fall by 1.3 million tonnes to 4 million tonnes this year and remain at that volume over the next twelve months. Exports of semi-finished and finished steel products, this year, will hold up at near to the values in 2000. However, weaker demand from South East Asia and possible trade restrictions in the US could lead to a fall off in foreign sales in 2002.
How can the mills solve the impending problems of weak prices and declining sales? Restructuring and plant closures would help but do not yield the cost benefits in Japan that can be found in many other countries.
Official figures indicate that the number of workers employed in the industry decreased by more than 5,000 between August 2000 and 2001 (5.5 percent). However, average earnings for the remainder went up by 2.5 percent. Furthermore, many of the lost workers were re-employed in subsidiary enterprises - albeit on lower rates. The total wage bill for the group was hardly reduced. It is reported that the Japan Federation of Iron and Steel Workers Unions have recently negotiated a deal for no job cuts in exchange for a pay freeze. This will further restrict opportunities for the mills to cut costs.
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