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Japanese steelmakers face more production curbs over virus crisis

Japanese steelmakers may need to accelerate restructuring plans or close more facilities as construction project delays due to the coronavirus add to industry woes, according to an analyst and industry officials.

Japan’s top two steelmakers Nippon Steel and JFE Steel, owned by JFE Holdings, have already announced plans to temporarily suspend five blast furnaces in total, cutting about 25% of their capacity.

The move could push annual crude steel output by the world’s No.3 steel producer to below 90 million tonnes, which would be the lowest since the global financial crisis in 2009.

Japan’s tally of infections stood at 11,500 by Wednesday, with the government coming under growing pressure over what many see as a desire to avoid a shutdown of the economy.

“If the pandemic continues for long, steelmakers may need to bring forward some restructuring plans or shut more facilities,” said Atsushi Yamaguchi, senior analyst at SMBC Nikko Securities.

Major construction companies such as Shimizu and Kajima have decided to suspend hundreds of their projects until May 6, a deadline for Japan’s state of emergency declared on April 7.

Japan expanded a state of emergency last week to include the entire country, from the main seven population centres, including Tokyo.

“About 90% of 500 projects in the seven prefectures have been halted to avoid the infection among workers,” a Shimizu spokesman said, adding the suspension areas have been expanded.

Kajima and construction company Obayashi are in talks with their clients to put a halt to their 700 and 600 projects respectively until May 6.

“We may need to slash our output from May if steel demand falls further due to wider suspension of construction projects,” Tokyo Steel Manufacturing’s managing director, Kiyoshi Imamura, said.

Steel demand had already been hit as automakers, including Toyota Motor, temporarily shut down some local plants due to weaker demand or parts shortages.

Export demand is also declining due to slower industry activities worldwide, said Yamaguchi.

Japan’s industry ministry has predicted steel demand for automobiles to fall 8% in April-June from a year earlier, while export will drop 21%.

Even before the virus crisis, steelmakers had been suffering weaker demand amid the U.S.-Sino trade war and higher prices of raw materials such as iron ore due to strong appetite from China, forcing Nippon Steel and JFE to cut their facilities permanently by 10-13%.

Shares in Nippon Steel and JFE have lost more than 50% so far this year to hit record lows, underperforming a 19% loss in broader TOPIX index.
Source: Reuters (Reporting by Yuka Obayashi, additional reporting by Gavin Maguire in Singapore; editing by Richard Pullin)

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