Japan Special Steel Output to Keep High in 2011

Japanese special steel production will keep just more than 20 million tonnes in 2011 as 2010 when the production recovered 90% level of the peak in 2008. Aichi Steel’s president Shokichi Yasukawa expects Toyota Motor’s world production will be same level in 2011 as 2011 when the demand increases in China and emerging countries while the domestic demand decreases. Other makers also expect the users keep firm activity for construction and industrial machinery along with automobile. However, their profitability is still severe despite of the high level production due to higher cost for raw materials especially for ferrous scrap under higher iron ore and iron making raw materials cost in first half of 2011.

Ministry of Economy, Trade and Industry estimates Japanese special steel production was 20.23 million tonnes in 2010, which is 52% higher than the level in 2009 and 93% of production in 2008. The production in 2011 is expected to be supported by high level production of automobile, which represents around 70% of special steel demand, when Toyota plans 7.7 million units of production in 2011, which is 0.9% higher than 2010 level and around 90% of the peak in 2007. Daido Steel’s president Tadashi Shimao expects the demand volume is not bad for the special steel industry. The special steel makers keep high level production when some major special steel makers shortened seasonal shutdown during a weeklong holiday in yearend and New Year compared with usual year.

However, the special steel makers’ production could be suffered from structural change in domestic demand when the users shift the production to offshore sites under higher yen rate. Japanese special steel export is estimated to be 6.71 million tonnes in 2010, which is 62% higher than the volume in 2009 and same level as the peak in 1985, while the domestic rolled production is estimated to be 13.52 million tonnes in 2010, which is 48% higher than 2009 level and 86% of the level in 2008. The users already increase the consumption of products made by offshore steel makers. Japanese special steel makers have to improve the competitiveness in the international market by establishing offshore production and processing bases and reducing the cost. Hitachi Metals’ president Hiroyuki Fujii said globalization is still main theme in 2011.

Their short term challenge is higher raw materials cost. Iron ore quarterly price increased for January-March from October-December. Coking coal price is expected to increase in April-June from January-March when heavy rain damaged production and shipment for Australian operations. The higher iron making raw materials cost could lift ferrous scrap market price.

Japanese special steel makers are still struggling to pass higher cost for raw materials while some of the transactions are covered by surcharge system. The higher cost squeezes the makers’ profitability. Their immediate test is how much price hike they can get in 2011 while they also try to change themselves to meet shifting demand to offshore countries.