Japan Metals Report Q4 2009

Japan Metals Report Q4 2009

Japanese metals producers saw the market downturn ease in Q209 and Q309 as destocking was completed
and demand revived with month-on-month (m-o-m) growth, but BMI’s latest Japan Metals Report warns
that over-capacity in Asia with massive growth in Korean capacity could thwart a full recovery to prerecession
levels in the near term.
The Japanese economy emerged from recession in Q209, but domestic demand remains weak and there is
uncertainty over whether an export recovery driven by global government stimulus efforts is sustainable.
In the first eight months of 2009, Japanese crude steel output was down 36.0% y-o-y to 52.66mn tonnes.
As BMI predicted in our previous quarterly report, the trend in crude output is upward, with no cuts
expected in H209. In August output was up 8.5% m-o-m to 8.31mn tonnes, 51.6% up over the low-point
seen in February, indicating that the industry was making a steady recovery. However, output was still
down 18.3% year-on-year (y-o-y) in August, demonstrating that the industry was far from returning to
pre-recession levels.
Strengthening Asian demand as a result of government stimulus spending has provided a short-term boost
to steel exports. However, with export markets accounting for 40% of Japanese steel exports and Asia
comprising 75% of exports, rapid steel capacity expansion in the region, led by South Korea, is a
significant threat to Japanese mills. Automotive sheet steel and shipbuilding plate are the two areas where
the country’s competitors are likely to cause the most problems due to the slump in both sectors as the
Korean market becomes less dependent on imports from Japan.
Uncertainty over demand in Q110 means that JFE Steel Corporation and Nippon Steel have been
reluctant to reopen idled capacity despite approaching full capacity utilisation. By Q309, JFE still had two
of its nine blast furnaces shut, although Nippon Steel had restarted its largest blast furnace in Oita by
September and was planning to restart its No.2 blast furnace at Kimitsu in October having suffered
problems in restarting the No.3 blast furnace – the No.1 blast furnace has remained operational.
Growth in 2010 will be stunted by the competitive regional environment, although much will depend on
the strength of the Japanese yen against the Korean won. BMI believes that this will be partly offset by
rising domestic demand. However, while the Japanese automotive industry will see growth of 1.1% in
2010, this will be cancelled out by a 1.9% contraction in the construction industry. It will take until 2013
before the industry is back to near where it was in 2008, with crude output exceeding 116mn tonnes.
For H109, the Japan Aluminium Association stated that Japanese demand for aluminium ingot and rolled
products deceased by 35.5% y-o-y to 1.43mn tonnes, the lowest level since 1986 and that rolled products
fell 30.0% y-o-y to 725,382 tonnes. The association said that it expects demand for the fiscal year (to
March 2010) of about 1.7mn tonnes for flat rolled and extrusion aluminium products, down 15% y-o-y.
An aggressive cut back in inventories may put base metals at risk of sharp rises in prices when demand
recovers more strongly.
Even when demand returns, BMI does not expect average run rates to exceed 70% over the medium term,
which means that aluminium smelting output is likely to run at around 750,000 tonnes per annum. We do
not envisage Japanese demand for new cars and houses, which had previously driven up aluminium
consumption, to return to pre-recession rates over the medium term. Japanese secondary aluminium alloy
smelters are increasing seeking to export alloys to China, with Chinese spot domestic prices holding firm
in Q209 compared with Japanese prices; in March, Chinese ADC12 alloy prices were trading at around
US$1,800-1,900 per tonne, while Japanese prices were around US$1,350 which is close to production
cost.

Executive Summary ....5
SWOT Analysis............7
Japan Political SWOT ....... 7
Japan Economic SWOT ..... 7
Global Metals Market Overview .....8
Table: World’s Top 10 Steel Producing Countries, 2007 And 2008 ... 10
Aluminium Outlook.......... 11
Table: BMI Aluminium Forecast ... 11
Copper Outlook . 13
Table: BMI Copper Forecast......... 13
Metals Price Outlook....... 15
Table: Stock Levels At London Metals Exchange Warehouses (tonnes)............ 17
Global Mining Outlook.... 17
Table: Biggest Chinese Acquisitions In Australia Since 2005............ 19
Table: Global Mining – Top Five Companies By Market Capitalisation (US$mn) 21
Table: Global Mining – Key Players’ Future Investment Plans (selected projects)............. 22
Regional Overview ....23
Table: Top 10 Asian Steel Producers, 2007...... 23
Industry Forecast Scenario ..........26
Table: Japan’s Metals Industry, 2006-2013 ..... 29
Macroeconomic Outlook 30
Table: Japan – Economic Activity, 2004-2013 . 33
Competitive Landscape.34
Steel 34
Table: Top Japanese Steel Producers, Worldwide Capacity, 2007..... 34
Table: Output At Sumitomo Steel Works In Japan, 2007 (’000 tonnes) ............ 35
Table: Crude Steel Production At NSC Steel Works In Japan, 2008 (’000 tonnes) 36
Table: Crude Steel Production Capacity At JFE Steel Works In Japan (’000 tonnes) ......... 36
Aluminium..... 37
Table: Japan Production Of Aluminium And Its Fabricated Products, Q407-Q408 (’000 tonnes).... 37
Company Profiles......38
Nippon Steel Corporation 38
Sumitomo Metal Industries ............ 39
Global Assumptions .40
Table: Global Assumptions, 2007-2013............ 40
Table: Developed States GDP Growth, 2008-2010 ........ 42
Table: Emerging Markets GDP Growth, 2008-2010 ...... 43
Table: Commodity Prices, 2007-2010. 44
BMI Methodology ......45
How We Generate Our Industry Forecasts ....... 45
Cross Checks 45