1

1

Economic & Steel Market Development

in Japan

70th OECD Steel Committee

Paris

May 12-13, 2011

The Japan Iron and Steel Federation

1. Macro-economic Overview

2. Steel Demand and Supply

v Major Steel-Consuming Industries

v Steel Production

v Steel Exports & Imports

3. The Earthquake and Its Effects

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3 1. Macro-economic Overview Japanese economy declined in Q4 ‘10

for the first time since Q3 ‘09.

However, there had been signs of

improvement since the beginning of this

year -- until 11 March.

The earthquake has given a drastic

impact on the Japanese economy.

Effects are especially being felt in:

Disruption of supply chain --

inflicting a sharp drop in the auto

and electrical appliance

manufacturing;

Power shortage by disaster of

Fukushima Daiichi nuclear power

plant; and,

A decline in consumer

confidence.

Research institutions revised their

economic forecasts for ‘11 downwardly

after the quake, while expecting

reconstruction-related rebound in ‘12.

Fig.1 GDP Growth Rate (%)

▲ 6▲ 5▲ 4▲ 3▲ 2▲ 1

01234

Ⅰ Ⅱ Ⅲ Ⅳ Ⅰ Ⅱ Ⅲ Ⅳ Ⅰ Ⅱ Ⅲ Ⅳ Ⅰ Ⅱ Ⅲ Ⅳ

2007 2008 2009 2010

PrivateConsumption PrivateResidentialInvestment

Private Non-Resi.Investment PublicInvestment

Net Exports PrivateInventory

GDP(expenditure approach)

Source: Cabinet Office

Chart 2. 13 Institutes' Predictions of Real GDP Growth Rateas of Apr. 27, 2011 (Unit: %)

preEQ

postEQ

preEQ

postEQ

FY2011

FY2012

Japan Center for Economic Research 1.5 ▲ 0.1 1.8 2.4 ▲ 1.6 0.6

Mitsubishi Research Institute, Inc. 1.5 0.5 1.7 2.4 ▲ 1.0 0.7

Mizuho Research Institute 1.6 1.3 1.8 2.2 ▲ 0.3 0.4

Nomura Securities Co., Ltd. 1.5 1.1 2.3 2.6 ▲ 0.4 0.3

total: 13 institutes

(incl. other 9 institutes)

avarage 1.6 0.6 2.1 2.6 ▲ 1.0 0.5

FY2011 FY2012 Changes

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Manufacturing activities bounced

back in ‘10, from a sharp drop of ’09,

while construction showing few signs

of recovery.

Disruption in supply chains, together

with restricted power supply, is likely

to put downward pressures on

activities in the steel-using sectors,

particularly the automotive and

machinery manufacturers.

(Steel consuming sectors)

2. Steel Demand and Supply

Construction

In the hardest-hit coastal regions,

investigations for reconstruction are

still going on, while some urban

areas have seen tentative

reconstruction activities started.

Compared to the Great Hanshin and

Awaji Earthquake, it is taking much

longer for reconstruction activities to

go into full swing.

Automotive

Interruption in the supply of car

parts is hampering auto

manufacturing for a prolonged

period.

It is expected to take some more

time for the production to return to

normal.

Industrial

Machinery

Paralised supply of parts has

temporarily interrupted production

even in western Japan, which

remained intact.

Electrical

Machinery

While production is partially coming

back to normal, disruption in the

supply chain is hampering

production, even in the areas not

affected by the quake.

Source: Press Release, News papers

Fig.4 Effects of the Earthquake

Source: METI, MLIT, JAMA

Fig.3 Activities of Major Steel-consuming Sectors

40

60

80

100

120

140

2005 2006 2007 2008 2009 2010

Automobile Production Industrial MachineryElectrical Macinery ShipbuildingCivil Engineering Building Construction (Floor Area)

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5

Japan’s crude steel production

recovered to 110m tonnes in ’10, from

a dramatic drop of ‘09, thanks to:

Brisk exports to Asian countries;

and,

A gradual recovery in the domestic

demand.

Output in March ‘11 decreased yoy

for the first time in 17 months, due to

the effect of the earthquake.

Most of the affected facilities in the

east Japan, however, have resumed

production, plus those in central/west

Japan remained intact -- there are no

major obstacles in terms of steel

supply.

(Crude steel production)

Fig.6 Crude Steel Production

▲ 60

▲ 40

▲ 20

0

20

40

60

80

08.4 7 10 09.1 4 7 10 10.1 4 7 10 11.1

(Ye

ar-to

-ye

ar c

om

pa

riso

n %

)

0

200

400

600

800

1,000

1,200

1,400

year-to-year comparison Crude Steel Production (Right Scale）

Fig.5 Crude Steel Production

112.7 112.5116.2

120.2 118.7

87.5

109.6

80

90

100

110

120

130

04 05 06 07 08 09 10

Source: Ministry of Economy,Trade and Industry

Million tonnes

Source: Ministry of Economy, Trade and Industry

6 (Steel Exports)

Steel exports in ’10 increased by

26.0% to 43.4m tonnes, largely

helped by a strong demand in the

South-east Asian region.

Asia accounts for more than 80% of

the total exports.

With Japanese mills supplying

steel to local factories of

Japanese companies

(automobiles, household

appliances, etc.)

Main exporting items are high-end

products of HR/CR and coated

sheets/coils.

Fig.7 Steel Exports by Destination

7.5

(17.3%)6.5

(18.8%)

6.7

(17.5%)

6.3

(17.2%)

6.2

(17.6%)

11.0

(25.3%)9.8

(28.5%)

9.3

(24.3%)

9.6

(26.0%)8.8

(24.9%)

3.7

(8.5%)3.4

(9.8%)

3.7

(9.7%)

3.6

(9.8%)3.5

(10.0%)

11.4

(26.3%)7.7

(22.5%)

10.4

27.2%)9.0

(24.4%)7.8

(22.2%)

9.8

(22.7%)

7.0

(20.4%)

8.1

(21.2%)8.3

(22.6%)8.9

(25.3%)

0

5

10

15

20

25

30

35

40

45

50

2006 2007 2008 2009 2010

(Million tons)

China South Korea Chinese Taipei ＡＳＥＡＮ（１０） Others

35.236.9

38.1

34.4

43.4

Other

2%

Ordinary Steel

Products

68%

Other steel sheets

5%

Long products

6%

Galvanized

13%

CRC/CRS

9%

HRC/HRS

22%

Pipes and tubes

4%

Plates

9%

Special Steel

19%

Semifinished

11%

Fig.8 Exports by product (in 2010)

Source: Ministry of Finance

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7 (Steel Imports)

Steel imports in ’10 increased sharply

from a drop last year, almost returning

to the pre-crisis levels.

Imports increased 56.2% to

7.2m tonnes.

Korea, China, and Chinese Taipei

account for some 70% of total imports

in ’10.

Main importing items are ordinary

steel products, followed by ferroalloy

and pig iron. Fig.10 Steel Import By Main Products (in 2010)

Ferroalloy

26%

Others

15%

Pig Iron

8% Ordinary Steel

Products

51%

Source: Ministry of Finance

Fig.9 Steel Imports by Country of Origin

1.5

(20.3%)0.8

(18.1%)

1.9

(23.6%)

2.0

(23.0%)

2.3

(28.9%)

2.8

(38.8%)

1.9

(41.5%)

2.8

(35.7%)

2.9

(33.2%)

2.6

(32.6%)

0.8 (11.5%)

0.6 (13.6%)

0.9

(10.7%)

1.0

(11.3%)

1.1

(13.3%)

0.1

(1.0%)

0.0

(0.9%)

0.2

(2.4%)

0.1

(1.1%)

0.1

(0.9%)

2.0

(28.4%)

1.2

(25.9%)

2.2

(27.7%)

2.7

(31.3%)2.0

(24.4%)

0

1

2

3

4

5

6

7

8

9

10

2006 2007 2008 2009 2010

(Million tons)

China South Korea Chinese Taipei ASEAN10 Others

8.0

8.7

8.0

4.6

7.2

8 3. The Earthquake and Its Effects

Compared with the Great Hanshin & Awaji Earthquake in 1995, this quake has

affected far broader areas, not only with the quake itself but also with effects of

tsunami and of the damaged nuclear power plant.

With budget for reconstruction not drawn up, it is too early to assess the

implication of the quake to the economy – and to steel demand as well.

The Great Hanshin & Awaji Earthquake The Great East Japan Earthquake

Date January 17, 1995 March 11, 2011

Magnitude M7.3 M9.0

Affected area Concentrated on Kobe cityBroad area

(affecting several prefectures)

Character of the areaConsuming area

(densely-populated areas)

East coast of Japan

(incl. industrial area)

Damage Building collapse and fire Building collapse and fire

Tsunami

Liquifaction Liquifaction

Nuclear plant

Port facility Port facility

RecoveryRelatively speedy recovery

of city function.

Expected to take longer because of

huge tsunami devastation.

Dead 6,434 14,704

Missing 3 10,969

Evacuee（peak time）  Around 320,000 Around 460,000

National expenditure 5 trillion yen (6 years) 10 trillion yen?

Damage amount 9.9 trillion yen 16-25 trillion yen (Cabinet Office)

(as of May 1)