Yen to Help Japan Steelmakers Reclaim Share From Chinese Rivals

Nippon Steel & Sumitomo Metal Corp. (5401) and JFE Holdings Inc. (5411), Japan’s top steelmakers, will reclaim marketshare lost to faster-growing Asian rivals, including Chinese suppliers, helped by a weaker yen and Prime Minister Shinzo Abe’s currency policies, analysts said.

“The continued weakening yen will reshape the landscape of the Asia steel sector, making Japan potentially the most competitive producer, particularly in the Asia export market,” Credit Suisse Group AG analysts including Trina Chen and Shinya Yanada said in a report dated yesterday. “We believe Chinese exports are the most vulnerable.”

The yen’s 20 percent decline against the dollar in the past six months under the Abe administration is alleviating cost pressure at Japanese steel suppliers and giving them a competitive edge over China’s Baoshan Iron & Steel (600019) Co. and South Korea’s Posco. The weaker yen will increase Japanese steel exports to Southeast Asia and Europe, which traditionally consume high-grade steel used in cars, said Shi Shengwu, an export manager at Wuhan Iron & Steel Co. (600005)

“The yen weakness will cripple China’s competitiveness on the sales of higher grades because they also target developed markets like Europe.” said Shi. Sales of high grade steels earned a higher profit margin, which helped compensate for shipping costs to Europe.

If the yen weakens to 120 yen a dollar from 95 yen, exports from Japanese steelmakers could gain a $50 to $65 advantage per metric ton, compared with non-Japanese suppliers in Asia, the Credit Suisse report said.

The Japanese currency traded at 98.89 yen to the dollar as of 12:09 p.m. in Tokyo. The yen has fallen the most in the past six months among the 10 developed-market currencies tracked by Bloomberg Correlation Weighted Indexes.

Chinese Exports

Chinese steel sales to the six major Association of Southeast Asian Nations, including Singapore, Thailand and Vietnam, surged 57 percent to 3.9 million tons in the first quarter of this year from a year ago, according to Bloomberg calculations based on data from the nation’s General Administration of Customs. The growth may slow to as little as 20 percent this month and even lower in June, Mysteel Research Institute analyst Wang Yizhou said.

“Changes in currency rates are helping Japan sharpen its edge in marketing high-grade steel products,” Shanghai-based Wang said in a phone interview. “The surge in Chinese exports to the Asean market will end soon, with high inventories already built up after a flood of steel shipments.”

Exports by Chinese steelmakers to Southeast Asia, the country’s biggest destination for shipments of the alloy. surpassed those to South Korea last year.

Assuming the Japanese currency will trade at 100 yen to the dollar, Nippon Steel and JFE will together boost exports by as much as 2 million tons in the year that began April 1, adding about 40 billion yen to profits combined, according to Kazuhiro Harada, a senior analyst at SMBC Nikko Securities Inc.

To contact Bloomberg News staff for this story: Masumi Suga in Tokyo at msuga@bloomberg.net; Helen Yuan in Shanghai at hyuan@bloomberg.net

To contact the editor responsible for this story: Jason Rogers at jrogers73@bloomberg.net

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