Japanese Nippon Steel will reduce production capacity by 10%

Japan's Nippon Steel Corp., the world's third-largest steel company, is set to cut about a tenth of its steel capacity, the Nikkei business newspaper reported, in an unprecedented move for the steel industry.

Nippon Steel plans to close both blast furnaces at its Kure plant “within a few years” and may close the entire steel plant amid rising production in China, Nikkei said, without citing a source.

In addition to cheaper products from China, Japanese steel mills face a future of stagnant domestic growth as population shrinks and a construction boom in the Tokyo Olympics and recovery in areas hit by the 2011 earthquake and tsunami attenuation.

"This will be the first steel shutdown in Japan of this magnitude," said Jefferies analysts Thanh Ha Pham and Sangin Yun.

Nippon Steel acquired the Kure plant in the western region of Hiroshima when it completed its takeover of Nisshin Steel last year. Other industries in Japan, such as processing, have seen similar changes following the mergers as the population shrinks.

However, according to Nippon Steel, no decisions have been made on this matter.

“The report is not based on our announcement,” the statement said.

“We are constantly looking at measures to improve the competitiveness of our metals business and we will announce any decisions when formalized.”

Japan's largest steelmaker in terms of production has faced a drop in profits as falling steel prices in Asia led to lower export margins and a series of suspensions at local factories caused by typhoons and fires that interrupted production.

One executive said last month that Nippon Steel could close more blast furnaces as part of plans to cut domestic capacity and costs.

Nippon Steel has 15 blast furnaces throughout Japan, with an annual production of 52 million tonnes of steel. He has already announced that he plans to close one of two kilns in the western city of Kure by March 2024, as well as another at his Yawata plant in Kokura, on the island of Kyushu, by March 2021.

According to the World Steel Association, global steel production reached 1.87 billion tonnes last year, up 3.4% from 2018. Production from China, the world's largest producer and consumer, hits record 1 billion tonnes