Mizuho 1038 iron_steel

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Mizuho 1038 iron_steel

  1. 1. Japan Industry Outlook / 38 2012 No.1 Table of Contents1, Comprehensive Industry - Japan 15, Broadcasting (Japanese only)2, Iron and Steel - Japan 16, Marine Shipping (Japanese only)3, Non-ferrous Metals - Japan 17, Logistics - Japan4, Paper and Pulp (Japanese only) 18, Electric Power - Japan5, Cement - Japan 19, City Gas (Japanese only)6, Chemicals - Japan 20, Retail - Japan7, Pharmaceuticals - Japan 21, Food and Beverage - Japan8, Petroleum - Japan 22, Food Service Industry - Japan9, Automobiles - Japan 23, Construction (Japanese only)10, Shipbuilding (Japanese only) 24, Real Estate and Housing - Japan11, General Machinery (Japanese only) 25, Travel and Tourism - Japan12, Electronics - Japan 26, Nonbank (Credit Cards & Credit) (Japanese13, IT Services - Japan only)14, Telecommunications - Japan 27, HR Service Industry (Japanese only) Contact: Industry Research Division Mizuho Corporate Bank, Ltd. mizuho.ird@mizuho-cb.co.jp
  2. 2. FY2012 Japan Industry Outlook (Iron and Steel)IRON AND STEEL Summary■ Domestic demand has grown in FY2011 on the back of an expansion in the manufacturing sector, including the auto and industrial machinery industries, and a recovery in private sector construction, with demand for ordinary steel expected to grow 2.5% over the previous year to 49.7 million tons. Although a boost should be realized from reconstruction in the wake of the Great East Japan Earthquake, overall demand in FY2012 is forecast to fall 0.4% year on year to 49.5 million tons owing to a large downturn in shipbuilding demand.■ In FY2011, overseas demand is expected to fall 9.1% to 42.6 million tons in terms of crude steel due to the slowdown in China’s economy, a deteriorating supply-demand balance in East Asia from South Korea’s aggressive exports, loosening market conditions and a downturn in profitability from the appreciation of the yen. With the same business climate set to persist into FY2012, demand is forecast to increase only minimally by 2.0% to 43.5 million tons.■ Despite the steady recovery seen in FY2011, crude steel output is expected to fall 5.1% to 105.1 million tons because of a significant drop in exports. In FY2012, output is forecast to fall for the second consecutive year to 104.3 million tons, or down 0.8% year-on-year, since increases in domestic demand will likely peak and there is little hope for a recovery in exports.■ In FY2011, Japan’s blast-furnace-operating steelmakers saw a precipitous drop in profitability due to the deteriorating supply-demand balance in East Asia, loosening market conditions and the continuing appreciation of the yen. With little change expected in domestic demand or the export climate, Japan’s blast-furnace-operating steelmakers are forecast to see their earnings power remain depressed in FY2012. 1 Mizuho Corporate Bank, Industry Research Division
  3. 3. FY2012 Japan Industry Outlook (Iron and Steel)I. INDUSTRY TRENDS [Fig. 2-1] Summary of Iron & Steel Demand and Supply [Actual] Brief FY10 FY11 FY12 FY11/1H FY11/2H FY12/1H FY12/2H (Unit) (Actual) (Es timate) (Forecas t) (Actual) (Es timate) (Forecas t) (Forecas t) Domesti c Crude stee l (Million tons) demand 69.3 69.5 69.1 34.5 35.0 34.4 34.7 O rdinary ste el (Million tons) 48.5 49.7 49.5 24.7 25.0 24.6 24.9 Crude stee l Exports (Million tons) 46.9 42.6 43.5 21.6 21.0 21.6 21.9 Crude stee l Imports (Million tons) 5.3 7.1 8.3 3.1 4.0 4.1 4.2 Crude stee l Output (Million tons) 110.8 105.1 104.3 53.0 52.1 51.9 52.4 Dome s tic O rdinary ste el inve ntory (Million tons) 4.9 5.1 5.1 5.1 5.1 5.0 5.1 [Rate of Increase and De crease] Brief FY10 FY11 FY12 FY11/1H FY11/2H FY12/1H FY12/2H (Actual) (Es timate) (Forecas t) (Actual) (Es timate) (Forecas t) (Forecas t) Domestic Crude stee l demand + 16.8% + 0.4% - 0.7% - 1.0% + 1.8% - 0.4% - 0.9% O rdinary ste el + 5.2% + 2.5% - 0.4% + 0.5% + 4.5% - 0.5% - 0.4% Exports Crude stee l + 14.2% - 9.1% + 2.0% - 7.1% - 11.0% - 0.1% + 4.2% Imports Crude stee l + 37.6% + 32.2% + 17.2% + 15.0% + 49.7% + 31.3% + 6.1% Output Crude stee l + 14.9% - 5.1% - 0.8% - 4.3% - 5.9% - 2.1% + 0.6% Dome s tic O rdinary ste el inve ntory + 3.2% + 4.5% - 0.4% + 0.5% + 4.5% - 0.5% - 0.4% Source: Compiled by MHCB Industry Research Division based on various materials. Note 1: Figures for FY2011 and FY2012 are based on MHBC Industry Research Division forecasts Note 2: Totals may not always add up perfectly because figures are rounded up.1. Demand and Supply TrendsDomestic demand is Domestic demand has growm in FY2011, with demand for ordinary steelexpected to rise in expected to rise 2.5% year-on-year to 49.7 million tons (see Figs. 2-1, 2-2 andFY2011 thanks to a 2-5). Despite a slowdown in civil engineering sector demand from delays in thequick post-quakerecovery in the post-earthquake reconstruction effort, the contruction sector is expected tomanufacturing industry grow 2.5% thanks to firm demand for nonresidential housing and an increase inand construction sector housing starts in the building-sector owing to government assistance measures. The manufacturing sector is also expected to grow 2.4% year-on-year thanks to an extremely quick post-quake recovery in production, especially in the auto industry, and continuing growth in demand for industrial machinery (see Figs. 2-1, 2-2 and 2-5).Strong growth is seen in In FY2012, demand for ordinary steel is forecast to decline 0.4% year-on-yearFY2012 owing to a to 49.5 million tons. The construction sector is forecast to grow 1.7%recovery in the year-on-year thanks to an expansion in public works projects from the full-scalemanufacturing sector start of post-quake reconstruction and greater private-sector demand on the back of a recovery in capital investments and various housing related policies. Whereas, the manufacturing sector is forecast to contract 1.7% year-on-year as 2 Mizuho Corporate Bank, Industry Research Division
  4. 4. FY2012 Japan Industry Outlook (Iron and Steel) growth in automobile demand will flatten out and shipbuiling demand is set to fall (see Figs. 2-1, 2-2 and 2-5). [Figure 2-2] Fluctuations in Domestic Demand for Ordinary Steel (%) Annnual growth rate & demand (Million tons) 70 10 contribution by sector 60 5 50 0 Construction -5 40 Construction 30 -10 Manufacturing 20 -15 Domestic demand 10 Manufacturing -20 0 -25 02 03 04 05 06 07 08 09 10 11e 12e 02 03 04 05 06 07 08 09 10 11e 12e ( FY) (FY) Source: Compiled by MHCB Industry Research Division based on the Japan Iron & Steel Federation’s “Iron and Steel Statistics Handbook”. Note: Figures for FY2011 and FY2012 are based on MHBC Industry Research Division forecasts.Exports set to Steel exports in FY2011 are expected to fall significantly by 9.4% year-on-yeardecline from to 39.5 million tons (see Figs. 2-3 and 2-5). A factor for this drop was looseningdeteriorating international steel market conditions, which are attributable to the deterioriatingprofitability andthe international supply-demand balance in East Asia caused by the slowdown in China’ssupply-demand economy from its monetary tightening measures and South Korea’s sharpbalance increase in exports. Another factor was that the profitability of exports for Japanese steelmakers took a dive with the continuing appreciation of the yen. Looking at FY2012, although an increase should be seen in demand from improving ecomonic conditions in China on the back of its monetary easing measures enacted in the lead up to the Communist Party’s annual autumn meeting, the poor supply-demand climate in East Asia is expected to persist because of continuing output increases in South Korea and China. As a result, exports in FY2012 are forecast to remain roughly flat at 40.2 million tons, or a 1.8% gain year-on-year (see Figs. 2-3 and 2-5).Imports from Ordinary steel imports are expected to rise 33.9% to 5.1 million tons in FY2011South Korea are amid a flood of imports from South Korea after import prices became muchincreasing sharply more competitive from the strong appreciation of the yen in the middle of thebuoyed by yen year (see Figs. 2-4 and 2-5). This trend is expected to continue into the nextappreciation fiscal year, and as a result, imports in FY2012 are forecast to continue to rise by another 20.0% year-on-year to 6.2 million tons. 3 Mizuho Corporate Bank, Industry Research Division
  5. 5. FY2012 Japan Industry Outlook (Iron and Steel) [Fig. 2-3] Fluctuations in Steel Exports [Fig. 2-4] Fluctuations in Ordinary Steel Imports(Million tons) (M illion tons) Others45 US 1040 M iddle East 935 8 China30 7 Other Asian 625 nations Taiw an Taiwan 520 415 China 310 2 South Korea 5 South Korea 1 0 0 02 03 04 05 06 07 08 09 10 11e 12e ( FY)(FY) 02 03 04 05 06 07 08 09 10 11e 12e Source: Fig. 2-3 and Fig. 2-4 compiled by MHCB Industry Research Division based on the Japan Iron & Steel Federation’s “Monthly Steel Statistics Report”. Note: Figures for FY2011 and FY2012 in Fig. 2-3 and Fig. 2-4 are based on MHCB Industry Research Division forecasts. Crude steel output Crude steel output in FY2011 is expected to fall 5.1% year-on-year to 105.1 began rising again in million tons. In FY2012, domestic demand will decline primarily due to a fall FY2010 due to growth in shipbuilding demand, and the increase in imports will continue, indicating in the manufacturing and export sectors that output is forecast to decline 0.8% year-on-year to 104.3 million tons, barely maintaining the 100 million ton mark (see Fig. 2-5). [Fig. 2-5] Steel Demand/Supply Outlook for FY2011 and FY2012 (1) Domestic demand (Unit: M illion tons) Ordinary steel FY2010 FY2011 FY2012 11/10 (%) 12/11 (%) (Actual) (Estimate) (Forecast) Construction 18.6 19.0 19.3 2.5 1.7 Building 13.0 13.8 13.9 6.6 0.5 Civil engineering 5.6 5.2 5.4 -6.9 4.7 Manufacturing 29.9 30.7 30.1 2.4 -1.7 Automobiles 10.6 10.9 11.0 3.5 0.7 Industrial machinery 4.5 5.1 5.2 11.1 2.5 Electrical machinery 3.3 3.2 3.3 -1.1 1.0 Shipbuilding 6.0 5.6 4.8 -6.2 -15.0 Total 48.5 49.7 49.5 2.5 -0.4 Apparent domestic 69.3 69.5 69.1 0.4 -0.7 consumption (2) Exports All iron & steel 43.6 39.5 40.2 -9.4 1.8 US-bound 1.7 2.0 2.1 18.5 5.9 China-bound 7.6 6.6 6.6 -12.5 -1.1 Asia-bound 28.3 25.1 25.4 -11.4 1.4 (exluding China) Crude steel exports 46.9 42.6 43.5 -9.1 2.0 (3) Imports All iron & steel 5.0 8.3 11.3 66.5 36.2 Ordinary steel 3.8 6.4 8.9 67.8 38.0 Crude steel imports 5.3 8.9 12.1 66.4 36.1 (4) Output Crude steel production 110.8 103.3 100.5 -6.8 -2.7 4 Mizuho Corporate Bank, Industry Research Division
  6. 6. FY2012 Japan Industry Outlook (Iron and Steel) Source: Compiled by MHCB Industry Research Division based on various materials. Note 1: Figures for FY2011 and FY2012 are based on MHBC Industry Research Division forecasts. Note 2: Apparent domestic consumption = Crude steel production + Crude steel imports – Crude steel exports.1. Market ConditionsSteel market China’s major steel markets have loosened in 2011 due to a drop in demandconditions are from the slowdown in the country’s economy and major inventory stockpilesshowing signs ofbottoming out, but (see Fig. 2-6). However, since then major Chinese mills have moved forwardstill lack the power to with production adjustments to escape sluggish corporate performance, asbounce back inventory currently stands at levels not seen in abuot two years (see Fig. 2-7). Going forward, market conditions appeared to bottom out in November 2011, and major price driver Baoshan Iron & Steel Co., Ltd. announced that it would maintain its February shipment prices, suggesting a bounce in prices can be expected. Steel market conditions in Japan have also loosened because they are easily affected by loosening international market conditions through imports and due to delays in inventory adjustments for construction materials that piled up in the wake of the Great East Japan Earthquake (see Fig. 2-8). In addition, although steel-sheet inventory is declining due to the quick post-quake recovery seen in the automobile production, it still remains above the so-called danger level of 4 million tons (see Fig. 2-9). Going forward, despite indications of a reversal in international steel market conditions, concerns persist of a further loosening in the supply-demand balance due to a boost in output from Chinese and South Korean steelmakers, indicating that market conditions are unlikely to see a full-scale turnaround. [Fig. 2-6] China’s Steel Market Trends [Fig. 2-7] China’s Steel Inventories (RMB / tons) Galvanized s teel sheet (Million tons) 208,000 Cold rolled s teel sheet 18 Manufacturer stock Heavy & medium plate Deformed bar 16 Distribution stock7,000 W ire rod Hot-rolled wide s trips 14 126,000 10 85,000 6 44,000 2 -3,000 1 1/1 0 11 2 1 1/1 1 2 10 2 09 2 0 9 /9 1 0/3 1 0/6 1 0 /9 1 1/3 1 1/6 1 1 /9 0 8/3 0 9/3 0 9/6 0 8/6 0 8 /9 /1 /1 /1 /1 08/1 7 09/1 7 10/1 7 11/1 7 08 Source: Compiled by MHCB Industry Research Source: Compiled by MHCB Industry Research Division based on the Japan Iron & Steel Federation’s Division based on the Japan Iron & Steel “Foreign Iron & Steel Market Trends”. Federation’s “Foreign Iron & Steel Market Trends”. 5 Mizuho Corporate Bank, Industry Research Division
  7. 7. FY2012 Japan Industry Outlook (Iron and Steel) [2-8] Domestic Steel Market Trends [Fig. 2-9] Domestic Inventories of Steel-sheet Products (Thousand tons) (JPY thousands / ton) Hot-rolled s teel plates130 Heavy plates 4,750 W ide flange beams 4,500120 Small bars110 Cold-rolled s teel 4,250100 4,000 90 3,750 80 3,500 70 3,250 60 3,000 50 08/1 7 09/1 7 10/1 7 11/1 7 08/1 7 09/1 7 10/1 7 11/1 7 Source: Compiled by MHCB Industry Research Source: Compiled by MHCB Industry Research Division Division based on the Japan Iron & Steel. based on Japan Metal Daily reports. Federation’s “Monthly Steel Statistics Report” Note: Figures represent the aggregate inventories of Note: Figures represent end-of-month Tokyo Stock manufacturers, wholesalers, and coil centers for three Exchange lows. main steel sheet products (hot-rolled, cold-rolled and surface-treated steel sheets).II. CORPORATE EARNINGS1. FY2011 Estimate Significant fall in In FY2011, the consolidated aggregate sales of Japan’s four major profitability expected blast-furnace-operating steelmakers are expected to decline 0.8% to 10.65 for in FY2011 amid trillion yen, while consolidating operating profits should drop 50.9% the deteriorating supply-demand year-on-year to 260 billion yen (see Fig. 2-10). balance, loosening Sales volumes declined due to production adjustments implemented by Japan’s market conditions and four major blast-furnace-operating steelmakers owing to the poor export yen appreciation climate and increased inventories. Steel prices are also on the rise compared to last year for major users on the back of higher raw materials prices. As a result, revenue is expected to remain largely unchanged year-on-year. In terms of profitability, the profitability of exports for Japanese steelmakers is rapidly deteriorating amid the slowdown in China’s economy, the poor supply-demand balance in East Asia from a rise in South Korean steelmaker exports, loosening steel market conditions, and the rapid appreciation of the yen that began in mid 2011. This coupled with the downward pressure placed on earnings by inventory valuation losses and carryover due to the drop in raw materials prices means that Japan’s steelmakers are likely to see a substantial fall in profitability in FY2011. 6 Mizuho Corporate Bank, Industry Research Division
  8. 8. FY2012 Japan Industry Outlook (Iron and Steel)2. FY2012 Forecast Revenue and profits Japan’s four major blast-furnace-operating steelmakers are forecast to see lower are expected to grow revenue but rising profits in FY2012, with consolidated aggregate sales likely significantly due to a set to decline 1.2% year-on-year to 10.52 trillion yen, while consolidated recovery in demand and a shedding of operating profits are expected to increase 23.1% year-on-year to 320 billion yen transient costs (see Fig. 2-10). Consolidated aggregate sales are forecast to fall to 10.52 trillion yen because of sluggish exports and domestic demand quantitively as well as the lack of a considerable recovery in market conditions. However, consolidated aggregate operating profits are forecast to remain at low levels, despite rising year-on-year to 320 billion yen. This is because of the deterioration in market conditions and the supply-demand balance in export markets on the back of increased output in China and South Korea as well as the persistently weak earnings environment due to weaker profitability from the appreciation of the yen against major currencies. Yet, a positive factor is that Japan’s steelmakers will be able to shed transient costs, such as inventory valuation losses and carryover tied to fluctuations in raw materials prices. [Fig. 2-10] Cash Flow Trends [Actual] No. of companies FY10 FY11 FY12 (Unit) (Actual) (Estimate) (Forecas t) Fou r m ajor bl ast- fu rn ace -ope rati n g Sales ste e l m ak e rs (JPY 100 m .) 105,661 106,500 105,200 Fou r m ajor bl ast- fu rn ace -ope rati n g Operating profit ste e l m ak e rs (JPY 100 m .) 5,292 2,600 3,200 [Rate of Increase and Decrease] Brief FY10 FY11 FY12 (Unit) (Actual) (Estimate) (Forecas t) Four major blast- Sales furnace-operating steelmakers (%) + 13.7% + 0.8% - 1.2% Four major blast- Operating profit furnace-operating steelmakers (%) + 219.0% + 23.1% - 50.9% Source: Compiled by MHCB Industry Research Division based on company financial statements. Note 1: Figures for FY2011 and FY2012 are based on MHBC Industry Research Division forecasts. Note 2: Japan’s four major blast-furnace-operating steelmakers are Nippon steel Corporation, JFE Holdings, Sumitomo Metal Industries, and Kobe Steel. 7 Mizuho Corporate Bank, Industry Research Division
  9. 9. FY2012 Japan Industry Outlook (Iron and Steel)III. Topics: Prominent Medium-term Business Areas Medium-term Japan’s steel industry will likely face challenging changes in demand over the operating medium-term due to the following three factors. environmental First, pure demand, which consists of government public works projects and changes domestic demand driven by the manufacturing industry, is set to decrease structurally in light of current population dynamics and government finances. Second, exports, too, will suffer from a challenging environment due to the economic slowdown following the European debt crisis, sluggish economic growth in China, increases in supply capacity from the construction of new steel mills by Chinese and South Korean steelmakers, and a downturn in the competitiveness (profitability) of exports due to the strong yen. However, the downturn in exports can also be attributed to cyclical factors as well. Third, indirect exports are also set to decline as the manufacturing industry shifts production overseas to capture demand from emerging markets and begins to procure more steel from local sources. This point should not be viewed as a cyclical factor tied to current foreign exchange trends or Japan’s weaker geographic location, but rather as a structural factor attributable to the fact that the manufacturing sector feels it is important to conduct localized R&D as part of its emerging market strategy and emerging companies are starting to keep pace technology wise. Key success In terms of output (supply side), however, the steel industry is an factors for the equipment-intensive industry that is difficult for outsiders to make inroads into steel industry or for established players to pullout from. Therefore, compared to the dynamic changes on the demand-side, the supply-side faces the limitation of always having to be one step behind. As a result, the overseas strategies of Japan’s steelmakers have been limited to alliances through minority stakes, vertically integrated downstream operations, and joint ventures, and at prsent they have yet to build full-scale integrated steel mills utilizing blast furnace processes outside of Japan. However, the key success factors for Japan’s steel industry over the medium term will be breaking through this limitation and developing optimized supply structures to cope with changes in demand. SWOT analysis of The key success factors for the broader materials industry, including the steel Japan’s steel industry, can be orgnized as raw materials, manufacturing technologies, industry products, markets, and capital. Of these, Japan’s steel industry excels at manufacturing technologies and products, but is poor at adapting to changes in the markets. South Korean competitor POSCO is pursuing a forward-looking strategy that addresses changes in demand from emerging markets, as evidenced by its construction of an intergrated blast-furnace in Indonesia together with state-owned steelmaker Krakatau Steel. Opportunities for Japan’s steel industry include growing demand in nearby emerging countries and heightend demand for environmental technologies, while threats include 8 Mizuho Corporate Bank, Industry Research Division
  10. 10. FY2012 Japan Industry Outlook (Iron and Steel) technological advancements and capacity increases in competitor countries.Prominent growth Based on this, prominent medium-term growth areas (strategies) for Japan’sareas steel industry will likely focus on how to build a supply structure tha can cope with changes in demand while leveraging the industry’s current strengths. Specifically this includes: (1) thoroughly streamline existing facilities in Japan to regain a cost competitiveness that can withstand overseas rivals; (2) construct fully integrated blast-furnace steel mills in emerging markets; and as a derivative of (2), (3) pursue alliances with prominent state-owned steelmakers in these markets. Being an equipment-intensive industry, Japan’s steel industry has traditionally preferred strategy (1) noted above, and some would say that (1) would be enough if foreign exchange rates become more favorable and the industry can find ways around its geographic location. However, with raw materials rising as a percentage of costs and with limited improvements possible through corporate efforts alone, Japan’s steelmakers should soon recognize the need to build their own integrated blast-furnance steel mills overseas. Teijiro Inoue teijiro.inoue@mizuho-cb.co.jp Primary Materials Team Industry Research Division Mizuho Corporate Bank, Ltd. 9 Mizuho Corporate Bank, Industry Research Division

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