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Japanese steel mills will reduce the cost and improve the quality

Japan’s largest steel manufacturer NSSC Company (NSSM) plans to
close the factory¡¯s the most old-fashioned one of three blast furnaces in Kimitsu
in fiscal year 2015, Kobe Steel in 2017 fiscal year; the company will close the
plant in Kobe the only one blast furnace. As for NSSC companies, the
optimization of production is the first time since 1993, while Kobe Steel is
also the first time since 1987 to restructure the production.

Facing Japanese cars and electronic equipment manufacturers actively
expand overseas production, domestic steel demand is unlikely to increase, and
the growing competition from China and South Korean steel mills, cost reduction
and production rationalization is critical to the survival of steel.

In fiscal year of 2012, the Japanese steel demand in 2007 from 79
million tons down to 61 million tons. As Japan’s population decline and
overseas auto production increases, Japan’s Kobe Steel CEO HiroyaKawasaki predicts
that domestic steel demand is expected to fall to less than 55 million tons.

As the oversupply East Asia steel, as well as the competition from
China and South Korea mills, forcing the Japanese steel mills to optimize
production and reduce costs. According to the World Steel Association
statistics, in 2012 the world’s crude steel output representing an increase of
1.2%, China accounted for 46% of total production. NSSC president HiroshiTomono
warned that China’s steel production will continue to grow, making the supply
and demand in a very dangerous level in East Asia. Moreover, Chinese and South
Korean steel mills also plans to begin production of new steel mills around
2015 and oversupply exacerbated. In recent years, the Japanese steel mills have
been forced to cut prices, compared with the 2008 fiscal year steel price drop
about 20% – 30%. In addition, the depreciation of the yen makes Japanese
imports of raw materials iron ore and coking coal prices to rise, and will inevitably
engulfs part of the Japanese steel mills profits.

The Kobe Steel factory by closing the upstream production equipment
and the upstream operations will all go to Kakogawa factory, which will make
the production operations will be more reasonable, and can eliminate the
oversupply in the upstream, and enhance cost competitiveness. Kobe Steel predict
that the annual cost will save over 15 billion yen by closing the factory
blast, but the rationalization of production may have a negative impact on the
local economy, such as downsizing and taxes.

Another major mills in Japan JFE Steel Corporation plans to build a
new factory in Fukuyama with the new equipment, greatly reducing the amount of
coal and other raw materials in the iron making process.

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