Japan electric furnace steelmakers may step up consolidation
28/01/2016 08:42
By Yuka Obayashi
TOKYO, Jan 28 (Reuters) - Japanese electric arc furnace
steelmakers may increase consolidation as falling domestic steel
demand for construction is leaving the sector with excess
production capacity and higher electricity costs are lowering
their profits.
The furnace steelmakers, which produce about 20 percent of
Japan's crude steel, are ripe for concentration as the industry
is only operating at between 60-70 percent of capacity, analysts
have said.
However, shuttering the steel plants runs counter to Prime
Minister Shinzo Abe's push to reboot the world's third-largest
economy, plagued by deflation and an aging, shrinking
population.
Slumping steel prices to 12-year lows ST-CRU-IDX , led by
record amounts of cheap products from China, are also pressuring
mills to close across the globe. urn:newsml:reuters.com:*:nL8N1593G4
"Even with Abenomics stimulus, construction demand is on the
decline due to weak housing starts, slack investments by
manufactures and lower public works," said Atsushi Yamaguchi, a
UBS senior steel analyst.
"These trends will push the industry into a consolidation."
Grappling with higher electricity bills after the Fukushima
nuclear disaster in 2011 shuttered the country's nuclear power
plants, some companies took steps to merge and close mills.
Tokyo Steel Manufacturing 5423.T , the country's biggest
electric furnace steelmaker, said last September it will close a
furnace in 2018, while Shinkansai Steel idled a steelmaking
plant from April.
In December, Godo Steel 5410.T said it would take over
Tokai Steel. In September Osaka Steel 5449.T said it would buy
Tokyo Kohtetsu 5448.T to shore up their positions to better
compete.
Still, UBS' Yamaguchi said mergers alone would not be
enough.
"What they need is a reduction of excess capacity," he said.
"It only makes sense if companies with similar product lines
and close geographical base join hands and shut facilities."
Japan's Ministry of Economy, Industry and Trade said in June
report that consolidation among electric furnace steelmakers is
inevitable.
UBS' Yamaguchi, however, expects the firms to move slowly as
they are owned by families who shun alliances and the recent
plunge in oil prices and cheaper scrap steel, a main feed
material for the plants, gave them a breather.
"But the number of electric furnaces has to come down as
Japan may face a demand slide at a pace beyond their tolerance
in the coming decades," he said.
(Reporting by Yuka Obayashi; Editing by Christian Schmollinger)
((Yuka.Obayashi@thomsonreuters.com; +813-6441-1798; Reuters
Messaging: yuka.obayashi.thomsonreuters.com@reuters.net))
Keywords: JAPAN STEEL/