Japan steelmakers may reduce output

JFE Steel, Japan's second-largest steelmaker, may join rivals such as Mittal Steel and Arcelor in cutting production to boost prices as demand slows in China, the world's biggest consumer of the alloy.

"We may reduce output over the next few months to deal with the supply-demand imbalance," Hajime Bada, president of Tokyo-based JFE, said yesterday in Beijing.

"Demand is slowing in China as the Government cuts fixed-asset investments while production is increasing."

Chinese prices for hot-rolled steel coil, a benchmark grade, have dropped 26 per cent this year as production soared and the Government limited investment in real estate. China, the world's biggest steelmaker, boosted output by a record 38 per cent in May, adding tonnage almost equal to the supply of Germany, France, Spain and the UK combined.

Imports by Japan, the world's second-biggest steel producer and JFE's home market, have soared as Chinese steel output increased. Inventories of ordinary steel in Japan rose for the second consecutive month in May, climbing 4.5 per cent to 6.7 million tonnes, according to the Japan Iron and Steel Federation.

JFE will trim output of lower-end steel sheets used in construction and instead try to increase production of higher-value products such as plates for ships, as well as galvanized steel sheets for vehicles, Bada said.

"The environment has come from one where demand was super tight last year to one resembling more of a normal situation now," said Tokyo fund manager Hideyuki Ookoshi.

"Japanese blast furnace steelmakers still have an edge over competitors with their high-end products."

Bada said it was hard to say how much output needed to be cut. "Demand from carmakers and shipbuilders is still very strong but we are at capacity for those products and there is a limit to how much we can change our product lineup in the short run."

Prices may rebound by the end of the year as steelmakers adjust production to match demand, Bada said.

He is in Beijing with presidents of other Japanese steel companies to meet their Chinese counterparts and discuss energy efficiency and pollution control.

Akio Mimura, President of Nippon Steel, Japan's largest producer, said the company would do what was necessary to maintain prices.

* Japan's Nikkei share average rose 0.18 per cent yesterday, as Canon and exporters got a lift from a weak yen, while retailers extended gains after the Bank of Japan's tankan survey of corporate sentiment last week showed a strong reading.

Still, overall gains were limited as investors turned cautious with the Nikkei hovering around 12-week highs.

The Nikkei gained 21.42 points to 11,651.55, the highest closing level since April 12, and the broader TOPIX index was up 0.36 per cent at 1,186.09.

- BLOOMBERG, REUTERS