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Roskill: Japanese steel industry is poised for a major downsizing in the years to come

Nippon Steel plans to suspend blast furnace operations at its Ibaraki Prefecture plant, near Tokyo, according to the Nikkei—the latest example of the group’s efforts to deal with overcapacity in Japan. With an earlier decision to halt three other blast furnaces, the steelmaker will cut its domestic capacity by 20%.

The production freeze, which is to take place within several years, is planned for one of two blast furnaces at the Ibaraki plant. By simple calculation, the blast furnace accounts for about 10% of the group’s total production capacity. The decision follows an earlier one to shut down three furnaces elsewhere, including at a Hiroshima plant.

—Nikkei report

Nippon Steel’s announcement is the latest example of the challenges faced by the steel industry in developed economies, notes Roskill: overcapacity and environmental regulations.

While demand from automakers is increasing, overcapacity remains an issue for the company. Furthermore, Nippon Steel is under pressure to reduce its use of blast furnaces, which emit large amounts of carbon emissions, as Prime Minister Yoshihide Suga pushes Japan toward carbon neutrality.

—Nikkei report

The Japanese steel industry has a total capacity of 130 Mtpy. In 2019, Japan’s crude steel production was 99Mt falling to 83Mt in 2020, implying a 64% capacity utilization.

Nippon Steel is Japan’s largest producer accounting for more than 50% of the country’s crude steel output. Like its peers in Europe, the Japanese steel industry is facing overcapacity with dire prospects. Domestic demand is on a downward trend, in line with a falling demography, making the Japanese steel industry highly dependent on exports.

The EU and the US are net steel importers, but Japan is the world’s second largest steel exporter after China. Japan is even more reliant on exports than China with a net export ratio of 25% versus 5% for China.

China is increasingly gaining market share in Southeast Asia, the region’s battleground. The steel quality gap between Japanese and Chinese material has narrowed; Korea is another strong regional player. Moreover, additional steel capacity is being built in Southeast Asia, implying a fiercer competitive environment in the years ahead.

As is the case in the EU, the Japanese government aims at cutting carbon emissions and targets net-zero greenhouse gas emissions by 2050. The Japanese steel industry will increasingly have to rely on technology (hydrogen/DRI) to comply with future regulations, according to Roskill—a task even more difficult for Japan as 75% of its steel production comes from the BOF (Basic Oxygen Furnace) route.

The BOF process (Linz-Donawitz-Verfahren steelmaking) converts molten iron—which comes from the blast furnace—and steel scrap into steel through the oxidizing action of oxygen blown into the melt.

With these headwinds in mind, there is no doubt that the Japanese steel industry is poised for a major downsizing in the years to come, according to Roskill.

Roskill’s upcoming Steel Alloys in the 2020s webinar will discuss the latest trends and insights on steel and its alloys, as well as share novel analysis on sustainability in the steel supply chain.


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