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Japan Q1 crude steel production volumes lowest in over 10 years, worse to come


Crude steel production at 2009 levels

Iron ore imports hit 10-year low

Ferrous scrap exports at 4.5-year high

Singapore — Japanese crude steel production in the past three quarters fell back to levels not seen since 2009 as the industry grapples with downstream manufacturing and construction worksite closures brought about by the coronavirus pandemic, compounding issues faced through existing tepid domestic demand and export opportunities.

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Production in the first quarter totaled 24.4 million mt, up 2.9% from the fourth quarter but down 2.4% year on year, according to the Worldsteel Association.

The prospects for the second quarter are no better, as the nation's steel industry continues to reel from the effects of the coronavirus pandemic.

"We're seeing contracting markets at home and overseas," a Japanese trader said. "It's only going to get worse in the second quarter as we will see the planned production cuts from major blast furnaces take place."

Major producer JFE steel said in March that the operating environment was unprecedented and extremely challenging, particularly weighed down by the slump in demand from manufacturing industries due to US-China trade tensions, rising raw material prices led by China's increased needs, and the rising cost of other materials used in production and logistics.

Since the third quarter of last year production volumes have been kept at bay as the nation saw falling demand both domestically in the export markets, with the Tokyo Olympics construction boom over and facing more competitive and restrictive export opportunities.

Iron ore imports nosedive to 10-year low

As crude steel production volumes waned, Q1 iron ore imports had an equally poor performance to hit a 10-year low of just 26.9 million mt, according to Statistics of Japan, down 10.1% quarter on quarter and down 6.1% year on year.

"With major blast furnaces cutting production, there's less need for the raw material," a trader said. "They have been trying to resell some of their term contracted volumes to Chinese users too, on top of selling their pig iron reserves. They have no choice but to offload."

Japanese blast furnaces were mostly known to be tied up to yearly term contracts with major miners, which could limit them in terms of flexibility as opposed to spot contracts, sources told S&P Global Platts.

"At this decline, renegotiation of contract period or terms may occur," the trader said. "I wouldn't be surprised if it was already happening."

Limited upside for Q2 iron ore demand continued as major steelmakers such as Nippon Steel and JFE Steel further suspended blast furnaces from April through June, while planning for permanent shutdown of furnaces by 2023.

Scrap exports up to a 4.5-year high

Reduced domestic scrap demand from blast and electric arc furnace steelmakers alike have seen the excess supply of volumes flushed into the export markets, with the Q1 volume up 14.3% quarter on quarter and up 36.1% year on year.

The largest destination in the quarter remained South Korea, but volumes were down 24.8% year on year at 842,288 mt. This was followed by Vietnam (829,003 mt), Taiwan (302,869 mt) and Bangladesh (208,267 mt), all of which saw higher volumes year on year.

Growing demand from Vietnam and Bangladesh were mainly led by increased production capacities. While Taiwan, seeing smaller volumes from alternative sources such as South America and Europe due container woes in the shipping industry in the first quarter, shifted interest to Japanese sources.

As domestic demand continued to be subdued with lower crude steel production, the competitiveness of Japanese scrap to regional buyers may continue to be a draw in the second quarter, but it will struggle for a balance against price support from possible slower generation, and increased overseas demand.

Semi-finished steel exports hit two-year high

Semi-finished steel exports hit 1.1 million mt in the first quarter, more than double from a year ago and up 25.7% quarter on quarter.

The export market served as an option to offload growing steel inventories within Japan, sources said.

The largest destination was Taiwan at 375,357 mt, up nearly fourfold from a year ago, followed by South Korea (down 34.7% at 257,644 mt), and Thailand (up 18-fold at 187,883 mt).

Over the year, Vietnam completely fell off as a destination for Japanese semi-finished steel as its market became more competitive and restricted. It was the second-largest destination by volume in Q1 2019 at 288,914 mt), but falling to essentially zero.

Meanwhile, the extremely poor performance of bar sales, having seen their export volumes for the past three quarters similar to those last seen in 2009, led to more support in flushing out semi-finished steel.

Rebar exports in the first quarter totalled 151,160 mt, edging up 1.4% quarter on quarter but down 18% year on year.