Japan's Steel Demand from Construction Sector Likely to Fall in Jul'18

According to a forecast released by Japan's Ministry of Land, Infrastructure, Transport and Tourism (MLIT), the carbon steel demand from Japan's construction sector in the month of July is anticipated to fall by 4.4% y-o-y basis.

Even for the ongoing month of Jun'18 the MLIT had made a forecast last month that the carbon steel demand from Japan's construction sector would fall by 0.65% y-o-y basis to 1.65 MnT.

The MLIT data shows that the monthly demand for carbon steel from the construction sector is expected to average at 1.58 MnT in the ongoing quarter of April-June'18.

In addition to carbon steel demand, the demand forecast for sections in the month of July is expected to rise 1% year on year and up 11.4% from June to 390,000 MT while those for small bars is expected to decrease by 8.2% y-o-y and by 8.3% M-o-M to 550,000 MT.

As per the market sources, a majority of construction projects in the country are planned after July and thus demand for carbon steel in expected to pick up from Aug'18.

How Japan's steel demand from construction's sub-sectors looks like?

The residential construction industry in Japan is very static as it requires consumers to amass substantial savings before they can afford a single-family home (SFH).

The lack of price-based competition and the lack of standardization of construction materials and methods are the main causes of residential sector's low productivity. The lack of price-based competition is the result of a missing secondary housing market, the small proportion of large-scale developments, and the lack of suitable multi-family home (MFH).

The key factors restricting growth of these markets are the lack of public transaction information, the Government Housing Loan Corporation's lending policies (which favor new housing), the tax system (which increases the cost of transacting in the housing market and decreases the cost of holding land), and the zoning codes (which hinder development of MFH).

Subsequently, the demand for carbon steel from Japan's residential sector is expected to remain quite muted this year. However, the rise in demand of carbon steel after Jul'18 is expected only from country's public and private civil engineering sectors, facility investment in the private sector, such as urban redevelopment in the Tokyo area, and in properties related to the Tokyo Olympic and Paralympic Games, and other projects.