Japan's steel production at its lowest level in 10 years

Crude steel production in Japan has fallen over the past three quarters to levels not seen since 2009, when the industry is facing closures of production and construction sites caused by the coronavirus pandemic, exacerbating the challenges posed by existing cold domestic demand and export opportunities.

According to the Worldsteel Association, production in the first quarter was 24.4 million tons, up 2.9% from the fourth quarter, but 2.4% less than the previous year.

The outlook for the second quarter is no better as the country's steel industry continues to suffer from the effects of the coronavirus pandemic.

“We are seeing shrinking markets at home and abroad,” said a Japanese trader. "This will only get worse in the second quarter as we see planned production cuts from the main blast furnaces."

JFE, the largest steelmaker, said in March that operating conditions were unprecedented and extremely challenging, especially with falling demand from manufacturing industries due to U.S.-China trade tensions, rising raw material prices driven by rising Chinese demand, and rising costs of other materials used in production and logistics.

Since the third quarter of last year, production volumes have been held back as the country saw a slump in domestic demand in both export markets and during the construction boom at the Tokyo Olympics, and in the face of more competitive and limited export opportunities.

Iron ore imports fell to 10-year low

As crude steel production declined, imports of iron ore in the 1st quarter performed equally poorly, hitting a 10-year low of just 26.9 million tonnes, according to Japanese statistics, down 10.1% from the previous year. quarter. and down 6.1% year on year.

“As large blast furnaces are cutting production, the demand for raw materials is decreasing,” the trader said. “They tried to resell some of their contract volumes to Chinese users, in addition to selling their pig iron stocks. They have no choice but to unload. "

It is known that Japanese blast furnaces are mainly associated with annual contracts with large mining companies, which may limit their flexibility in contrast to spot contracts, sources at S&P Global Platts said.

“With such a decline, there could be a renegotiation of the terms of the contract or terms,” the trader said. "I wouldn't be surprised if this is already happening."

Limited upside potential for iron ore demand continued in the second quarter as major steel producers such as Nippon Steel and JFE Steel continued to suspend