Japan Steelmakers Weigh Action to Stem Flood of Imports

Japanese steelmakers, which yesterday reported foreign imports at a nine-year high for April, are weighing action to stem the flow of steel from abroad, risking heightened tensions with trading partners South Korea and China.

“Anti-dumping duties are likely to appear on the radar for steelmakers if imports remain high” and they sense that steel is being sold in Japan at unfairly lower prices than in exporters’ local markets, Ryuichi Yamashita, director at the iron and steel division of Japan’s trade ministry, said in an interview.

As Japan’s building boom sucks in steel from Asia, any response would depend on whether imports continue at high levels and damage is being inflicted on domestic companies, the chairman of the Japan Iron and Steel Federation, Hiroshi Tomono, told reporters last month in Tokyo.

The federation, an industry body, is looking for clues as to why imports are up despite a weaker yen, which should make steel from foreign suppliers more expensive. Steel imports in the three months to March 31 rose to their highest since 1997 on a quarterly basis. The federation yesterday said imports in April exceeded 400,000 metric tons for the sixth consecutive month.

Domestic Market

The increase in Asian imports has triggered a softening in the domestic steel market and higher inventories, contributing to a drop of about 19 percent in the value of Nippon Steel & Sumitomo Metal Corp.’s shares this year, said Jiro Iokibe, an analyst at Daiwa Securities Co.

Profit growth at Nippon Steel, Japan’s biggest steelmaker, will slow to 8.7 percent in the year to March, according to the median estimate of 17 analysts compiled by Bloomberg. Kobe Steel Ltd., which reported its first profit in three years last financial year, will likely report a 25 percent profit decline this year, analysts said.

Imports from South Korea rose 18 percent to 284,000 tons in April, the federation said yesterday. Imports from China almost tripled to 52,000 tons.

“Honestly speaking, these are some pretty awesome numbers if we look at the levels objectively,” said Iwao Toide, the president of Metal One Corp., a steel trading company owned by Mitsubishi Corp. and Sojitz Corp. “We can only say we’ll carefully monitor how things go.”

Industry Glut

Higher imports add to the challenges facing Japanese steelmakers seeking to protect earnings as the benefits of Prime Minister Shinzo Abe’s financial measures taper off and economic growth slows.

Excess supply particularly from China, which produces half the world’s steel, has prompted governments across the world to take steps to protect their home markets.

“Considering where overseas mills’ margins are given where currency levels are now, it’s hard to imagine that such large volumes are coming into Japan,” Tomono, who also serves as vice chairman at Nippon Steel & Sumitomo, told reporters last month in Tokyo. Antidumping measures are “among the options” as steelmakers consult with the government, he said.

Japan itself is the subject of 25 cases of anti-dumping duties levied or under investigation on steel from Japan in overseas markets, according to data compiled by the trade ministry. Japan, the world’s second-biggest steel producer, hasn’t imposed tariffs on imports.

Trade Actions

Though the possibility that domestic steelmakers will push for anti-dumping measures is low, the comments by the federation’s chairman may be a warning to overseas steel suppliers, said Kazuhiro Harada, a senior analyst at SMBC Nikko Securities Inc. 

“Since Japan is an export country, they cannot afford to take action against imports,” Harada said. “Damages to the Japan side will be bigger” because any action would give other countries an excuse to protect their home markets by imposing tariffs, he said.

Steel production in China climbed to a record in March even as that country’s economy grew at its slowest pace in six quarters. In Korea, Hyundai Steel Co. last year expanded output capacity by half, while its bigger domestic rival, Posco (005490), built its first overseas integrated mill in Indonesia.

Industry overcapacity may worsen in the next two to three years as steel production capacity continues to expand, Dai Zhihao, general manager of Shanghai-based Baoshan Iron & Steel Co. (600019) said last month in Shanghai.

Posco

Japan is especially wary of steel from Korea, which accounted for 68 percent of the nation’s total steel imports in the last quarter. Korean steelmakers, facing overcapacity, are increasing exports of better-quality steel to Japan and Taiwan, according to Yamashita of Japan’s trade ministry. The improved quality of Korean steel has also contributed to rising shipments to Japan, he said.

Posco spokesman Kang Min Suk declined to comment.

Imports from Korea accounted for 9.7 percent of the domestic steel market in the first quarter, up from 7.4 percent a year earlier, federation data shows.

Beyond antidumping measures, Japan’s steelmakers’ options include cutting prices to reduce imports volumes, or maintaining prices and losing market share, said Shinya Yamada, an analyst at Credit Suisse Securities Japan Ltd.

To contact the reporters on this story: Masumi Suga in Tokyo at msuga@bloomberg.net; Ichiro Suzuki in Tokyo at isuzuki@bloomberg.net

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

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