Japan Steels to Reshuffle Cost Structure under High Yen Rate

Japanese steel makers should improve the cost competitiveness and revise the global strategy under historical higher yen rate against US dollar and euro. The higher yen rate results in offshore shift by steel users including automakers and appliances makers along with higher steel import and lower export. Some of Japanese major steel makers started study to survive at 80 yen per US dollar level of yen rate.

The yen rate hit record high of around 76.1 yen per US dollar on Wednesday after the rate kept 76-77 yen range since August. The yen rate also 10-year high of around 105 yen per euro in September. The yen rate is historical high compared with around 100 yen per US dollar after Lehman shock and around 160 yen per euro in mid-2007. Yen rate also increases to 1,400 South Korean won per 100 yen level.

Japanese administration recognizes the historical high yen rate could result in rapid manufacturers’ offshore shift under severe competition with rivals in emerging countries. The government tries to launch special action to secure domestic manufacturing. However, the higher yen rate could continue longer time under sovereign risk in Europe and slowing economy in USA.

Japanese integrated steel makers have balanced position in import and export when they import all of the raw materials. However, they concern the domestic steel users shift the production to offshore plants reducing domestic steel consumption. Ministry of Finance reported total steel export in August hit year to year decrease for 6 months in a row while the import increased for 4 months in a row.

Asian steel industry is under oversupply condition due to aggressive investment by Chinese and South Korean makers despite of the demand growth. Japanese steel makers should improve the cost structure through across the board effort in process, logistics and procurement to seek sustainable growth under the foreign exchange condition.