Japan Steel Makers Study More Intercompany Cooperation

Japanese steel makers are likely to seek more production cooperation each other when the demand decreases sharply worldwide. Some makers started cooperation between integrated steel and electric furnace steel makers when the makers’ profitability gets worse due to lower sales volume and higher cost under production cut. The makers try to improve the cost structure when Japanese raw steel production could decrease to less than 100 million tonnes in fiscal 2009 starting April.

An integrated steel maker and electric furnace special steel maker study for potential cooperation. The integrated steel maker considers potential semi-finished steel and steel bar supply to the special steel maker to utilize the upper stream capacity and reduce the production cost. Other integrated steel maker studies to shift the production of construction materials to the group’s electric furnace carbon steel makers. The firm plans to utilize more ferrous scrap to improve the cost competitiveness in the group.

The move is based on their view for longer steel demand slump. Japanese raw steel output decreased by 38% to 6.37 million tonnes in January from a year earlier, which was the lowest level in 40 years. The integrated steel makers plan to reduce the production by 25-40% while the electric furnace steel makers reduce the output by around 50% in January-March.

The major production cut impacts on their profitability, especially for integrated steel makers. The makers build inventory of pig iron and semi-finished steel products at the steel works when the operation rate is higher in the upper stream operations than the downstream. The severe condition could continue in April-June when the sheet steel inventory adjustment could take more months.