Impact of the Japan Earthquake on the Steel Industry


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The substantial overcapacity in the Chinese steel industry, which has a surplus of 100 million metric tons, along with the excess capacity of South Korea will compensate for the potential decline in Japanese steel exports. In the short term, the import of steel products for the reconstruction of infrastructure is expected to increase in Japan. However, Japan’s steel capacity is expected to suffice and meet domestic demand in the medium term.

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Impact of the Japan Earthquake on the Steel Industry

  1. 1. MARCH | 2011Copyright © Beroe Inc, 2011. All Rights Reserved 1Impact of the Japan Earthquakeon the Steel Industry
  2. 2. OverviewThe earthquake and tsunami caused widespread damagein Japan,inflicting heavy damage to roads,railways,ports,and industry infrastructure.These natural disasters alsoled to the outbreak of several fires and the collapse of adam.The tsunami led to flooding in the Fukushima Nuclearpower plant, causing the failure of emergency reactorsneeded to run pumps that cool the reactors. As a result,a series of accidents have occurred in the plant, includinghydrogen explosions, which destroyed the outer buildingof reactors 1, 3, and 4, caused partial nuclear meltdownsin reactors 1, 2, and 3, and fuelled a fire in reactor 4.Due to radiation leakage, a 30 km evacuation zone wasenforced around the plant.Country Snapshot• Japan is the world’s second largest steel producingcountry.Its production totaled 109 million metric tonsof steel in 2010.• Japanisamongtheworld’stopthreeironoreimporters.The country accounted for about 12.8% of global ironore shipments in 2010.• Japan was the second largest exporter of steel in Asiain 2010. It exported 43 million metric tons of steel.• Japan’s five major steel producers account for about80% of the country’s steel production capacity. Mostof their production bases are located near the TokyoBay, Osaka Bay, and Hakata Bay.• Japan is home to the world’s second largest and sixthlargest steelmakers and has an installed capacity of132.4 million tons.Affected SteelmakersThe earthquake and the tsunami forced some Japanesesteelmakers to temporarily suspend operations on March11. However, by March 13, many of these steelmakersresumed operations.Nippon Steel’s Kimitsu unit was temporarily shut downfor inspection.Two out of its three furnaces were restartedfollowing the inspection. Nippon Steel announced thatthe operations of its Kimitsu unit have been restored topre-earthquake levels. The Kimitsu unit produced 5.9million tons of crude steel in 2010.A fire broke out in JFE Steel’s Keihin unit but has sincebeen extinguished.JFE Steel’s blast furnaces at its Keihinand Chiba units were banked initially and operationswere suspended. However, the blast furnaces have startedoperating normally.Sumitomo Metal Industries Limited’s coke oven gasstorage unit in Kashima, Ibaragi caught fire on March11.The fire was extinguished by the next day, March 12.The unit’s two blast furnaces were blanked indefinitelyand were inspected for damage. One of the furnaces wasrestarted on March 20; however, the second furnace isexpected to take several days for operations to resume.The Kashima unit produced 5.7 million metric tons ofcrude steel in 2010.Tokyo Steel announced that it will restart its operationsonly after confirming that all of its facilities have notincurred any damage.TheKantoplainregioncontains18electricsteelproducers,including Tokyo Steel Manufacturing, Godo Steel, andKanto Steel. The Kanto region accounts for 400,000metric tons of crude steel per month. The downstreamindustry for this production is mainly construction.Electric steel mills have been affected by the powerrationing implemented by Tokyo Electric Power. Theproduction of these mills is expected to fall due to thepower restrictions.Itoh Steel’s mini mill at Ishinomaki produces 200,000metric tons of steel a year, and Tokyo Tekko’s mill inHachinohe produces 170,000 metric tons per year. Bothof these mills were flooded.Copyright © Beroe Inc, 2011. All Rights Reserved 2
  3. 3. Copyright © Beroe Inc, 2011. All Rights Reserved 3Impact on Steel MarketsDomestic MarketThe earthquake and the tsunami destroyed thousandsof homes, schools, and factories. The ports in Sendai,Ishinomaki Hachinohe, and Onahama suffered heavydamage and will require months for reconstruction.The rebuilding of infrastructure in the earthquake andtsunami stuck region is estimated to cost around USD180 billion. A projected 10% of this reconstruction costwill be for steel. Reconstruction is expected to consume30 million metric tons of steel in the next two years.Japan’s Ministry of Land, Infrastructure, Transport, andTourism has asked companies involved in emergencyhousing and kit homes to increase their production to helpaccommodate the nearly 390,000 people who are currentlyhomeless. The increase in the production of emergencyhousing could result in increased demand for constructionsteel products.However,demand is not expected to pick upimmediately as there is uncertainty surrounding when thereconstruction efforts will begin in Japan. Reconstructionfollowing the Kobe earthquake that stuck Japan in 1995started only two months after the quake hit.Japan’s manufacturing output is expected to be affectedin the short term due to the power rationing implementedby the Japanese government.For example,power cuts havereduced the output of the automobile industry.In the shortterm, the drop in output from the manufacturing industrywill cause a temporary fall in the demand for steel. Thecountry’s manufacturing industry consumes 65% of steelin Japan.However,the power rationing implemented by the Japanesegovernment is not expected to impact the steel productionof large producers. Players like JFE Steel have in-housepower generating capacities to meet 95% of their powerneeds. Nippon Steel is 90% self-reliant in terms of itsenergy demand requirements. However, the mini mills thatoperate electric furnaces are likely to be affected by powerrationing.International MarketThe significance of the Japanese steel industry is reflectedby the steel imports of South Korea, China, Thailand,Taiwan, Indonesia, Singapore, and Malaysia. Theseseven countries imported 78 million metric tons of steelproducts in 2010, out of which steel products from Japanmade up 31 million metric tons (about 40% of their totalimports).CountryPercentage of Importsfrom JapanSouth Korea 45%China 47%Thailand 40%Taiwan 44%Indonesia 24%Japanese Steel Market Statistics (2010)Production: 109.6 million metric tonsExports: 43 million metric tonsConsumption: 60 million metric tonsThe reconstruction of infrastructure in Japan will requirea huge quantity of steel. Once the reconstruction processbegins, much of the steel produced in Japan is expectedto be directed towards reconstruction efforts. As a directconsequence, steel exports from Japan will decrease.The void which is expected to be left by the decreasein Japanese steel exports is likely to be filled by SouthKorean and Chinese steelmakers. South Korea’s POSCOhas already been requested by South Korea’s leading shipmakers to increase its production of steel by 600,000metric tons to mitigate the risk of supply disruptions fromJapan.
  4. 4. Disclaimer: Strictly no photocopying or redistribution is allowed without prior written consent from Beroe Inc.The information contained in this publication was derived from carefully selected sources. Any opinions expressed reflect the currentjudgment of the author and are subject to change without notice. Beroe Inc accepts no responsibility for any liability arising from use ofthis document or its contents.For more information, please contact Narayanan | Research AnalystSource: Steel Business Briefing,Reuters,Wallstreet Journal, AMMCopyright © Beroe Inc, 2011. All Rights Reserved 4ConclusionThe substantial overcapacity in the Chinese steel industry, which has a surplus of 100 million metric tons, along withthe excess capacity of South Korea will compensate for the potential decline in Japanese steel exports. In the shortterm, the import of steel products for the reconstruction of infrastructure is expected to increase in Japan. However,Japan’s steel capacity is expected to suffice and meet domestic demand in the medium term.