Japan's construction steel demand seen falling further

New Japanese government data indicating the impact the COVID-produced economic slowdown is having on private construction is giving steel industry insiders more cause for concern, especially for their business during the early part of next year.

The latest statistics released on November 30 by Japan's Ministry of Land, Infrastructure, Transport and Tourism (MLIT) showed that new building starts nationwide including housing and non-housing in October totalled 9.61 million square meters, down by 9.4% on year and making for the 14th consecutive monthly on-year decrease.

Within the total, starts on non-timber buildings reached 5.2 million sq m, down 9.7% on year, and within this total, starts on steel-framed buildings - which consume more beams and sections - totalled 3.28 million sq m, down 10.7% on year, the seventh straight monthly on-year dip. Starts on reinforced concrete buildings - which consume more rebars - reached 1.75 million sq m, down 5.7% on year, according to MLIT data.

Actual steel orders for new buildings usually begin emerging about six months after the launch, Mysteel Global notes, so the slump in starts the ministry's numbers show will likely translate to declining construction steel orders around April-May next year, the first months of Japan's new fiscal year when demand is generally slow anyway.

For now, actual orders for construction steel haven't dropped, probably because contractors booked a little more steel than needed in anticipation of steelmakers and traders raising steel prices, a construction steel trader in Osaka suggested. But the orders will start declining soon because of the slowdown in building starts about six months ago when the Japanese economy was struggling under the first COVID-19 outbreak.

"We hear that building owners are in a worse situation because banks are being stricter when examining the credit lines of borrowers and consumers have less appetite for investing in property because the virus outbreak has weakened their financial condition. I can see new building starts continue declining, so construction steel demand for building projects will fall too," he explained.

A sales official from a mini-mill in Tokyo expected that construction steel demand for civil engineering projects will be kept at certain level, thanks to government initiatives such as the so-called National Resilience project of infrastructure building to mitigate the impact of disasters and floods. "But steel demand from civil engineering is only 25-30% of total construction, so we have to be ready for the decline in demand for construction steel overall," he warned.

Carbon steel orders by building construction in September totalled 539,539 tonnes, up 13.7% on year and 16.7% higher on month, while those for civil engineering totalled 212,458 tonnes, up 26.6% on year and up 68% on month, as previously reported.

"Some mini-mills have been aggressive to produce billets for export to fill their production schedules and make their operations efficient, but we wonder if billet exports can continue supporting the Japanese mini-mills," the sales official wondered. "It may become a challenge in the near future because of high scrap prices."

Japanese billet suppliers are currently stepping back from offering their billet to overseas buyers because scrap prices are rising rapidly and they cannot estimate where scrap will be priced in coming months, as previously reported.

Japanese scrap prices among mini-mills around Tokyo have risen by around Yen 3,500/t ($34/t) in a month, with the mills currently paying around Yen 30,500/t for H2 material. "At these prices, our offer prices for billets have to be close to Yen 50,000/t FOB but no one will accept this in today's market. Anyway, we are afraid to offer our billet now because scrap prices seem set to rise further," the official said.

Japan exported total 98,823 tonnes of billet in October, up 47.2% on year and 26.5% higher on month, according to the latest data by Trade Statistics of Japan.

Written by Yoko Manabe, yoko.manabe@mysteel.com

This article has been published under an article exchange agreement between Mysteel Global and SteelMint.