Steel
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Japan's Declining Steel Exports
April 2021
Japan is the second largest exporter of steel in the world; but its dominance is at the precipice of waning. The rise of China—the top exporter of steel since 2006—as well as industry concerns of excess capacity and increased protectionist measures have led to decreasing Japanese steel exports.

The country exports its steel to more than forty-five nation worldwide, but shipments have fallen every year since 2013 from their peak of 43.8Mt to 32.1Mt in 2020. Additionally, domestic steel demand has been sliding steadily over the past few years in major demand industries of construction, automotive, machinery equipment, and shipbuilding.

 

 

Some of Japan’s major steel export markets are China, US, India, Malaysia, Korea, and Germany. The only country with growth during the 2016 to 2020 period was China, with steel exports of 5.9Mt last year. Meanwhile, the US experienced the greatest decline for the 5-year period of 55%, from 2Mt in 2016 to only 0.9Mt in 2020. The remaining countries followed similar trends but are not as severe or dramatic as the US.

Antidumping and countervailing duty orders (AD/CVD) are not a typical strategy which Japan has pursued, and relatively speaking, they are in a favourable position when we consider the almost free US-Japan Trade Agreement came fully into effect at the beginning of 2020 which includes articles of iron or steel. Although, as of March 2021, the US has 15 (from a total of 290) AD/CVD tariffs imposed on Japan in relation to three main categories of iron and steel export products.

By comparison, China has a total 68 AD/CVD tariffs imposed from the US. However, the Japanese steel industry is very different to its Chinese counterpart, given that it is highly specialised. For instance, Nippon Steel produces steel for Japan’s high-speed railway networks, across a range of different components, from the rail to the steel brake disc and drive unit. By contrast, China's steel industry is more efficient at making basic steel products—such as slabs, flat rolled sheets, steel coil, and rebar—and is not highly specialised or inclined to make value-added steel products. 

 

 

Japan Domestic Steel Demand

On the domestic front, Japan’s steel demand has been steadily falling for the last few years. Last year, the domestic economy consumed 35.9Mt, down 18.2% compared to 2017's level of 43.9Mt. Construction is the largest steel consumer in Japan with 9.9Mt used in 2020, down 4.5% y-o-y. However, this sector includes building and civil engineering which has variable y-o-y declining growth rates of 2.1% and 0.6%, respectively. Other demand industries of shipbuilding and automobiles have recorded similar moderate downward trends over the four-year period.

Japan’s top three regional areas for ordinary steel product use—Kanto, Kansai and Tokai—recorded a 12.3% slip to 27.2Mt in 2020. From a historical short-term perspective, since 2017, these three regions are collectively down by 19% from 33.6Mt. AME expects Japan's apparent steel consumption demand to rise by 2% in 2021 to 65Mt. Last year marked the trough of Japanese steel demand and moving forward, we expect a steady growth increase until around 2024 and a slowdown thereafter.  

 

 

JFE Steel and Nippon Steel

The issue of overcapacity in the steel industry has been problematic for many years, and subsequently the capacity utilisation rate (CUR) has not been favourable for quite some time. The demand for steel is relatively inelastic, which means when there is a price decrease the market will not grow larger. On the contrary, steel producers will try to cut their prices further to take business away from competitors.

Japan faced difficulties during the pandemic with many steelmaking facilities being shut down and then re-starting once demand recommenced. Increasing crude steel capacity in Asia outside of China and domestic government policies in preparation for lower carbon future have curbed Japan’s steel capacity.

Consequently, the top two steel producers in Japan, Nippon Steel and JFE Steel, are reducing capacity in blast furnace technologies. Nippon Steel shut down its Kokura Works in June 2020 in a historic move. Moving forward, planned shutdowns of crude steel capacity will include, Setouchi Works Kure Area (September 2021), and Kansai Works, Wakayama (September 2022, #1 BF). These shutdowns will account for approximately 7Mt of crude steel capacity. Meanwhile, JFE Steel expects to shutdown Keihin Works by March 2024, resulting in reduced crude steel capacity of around 6Mt.  

 

 

Future Investments

Despite shrinking steel demand, JFE Steel and Nippon Steel are being proactive as the steel industry consolidates and restructures. JFE Steel has a 5% ownership in Vietnam’s Formosa Ha Tinh that currently has a crude steel capacity of 7Mt. Covid-19 impacts have delayed construction plans by approximately 12 months; however, the steelmaking facility will have 20Mt of crude steel capacity. At this stage, no specific date has been planned. Additionally, JFE's Chiba Works #6 blast furnace will be revamped by September 2023, at a cost of approximately US$404m.

Nippon Steel capital expenditure for fiscal years 2018 to 2020 (end March 2021) was approximately US$13.2b, while its new investments were US$5.6b during the same period. The company invested US$940m of equity into an acquisition of Essar Steel India. Many of its steelworks are passing their 50-year anniversary since construction. Consequently, some facilities have the reality of very long refurbishment cycles, in particular coke ovens and infrastructure equipment. Moving forward, opportunities for Nippon Steel include investment decisions by product, the customer sector, and regions in Japan and overseas, which can also include interests in raw materials.