Current Situation Of Steel Supply And Demand In Japan - OECD

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2009/6/8 Current Situation of Steel Supply and Demand in Japan June 8, 2009 The Japan Iron and Steel Federation The Current Japanese Economy 1. 1. Macroeconomic Overview 2. Japan’s Additional Economic Measures for Fiscal 2009 3. Forecast for GDP Growth in Japan Steel Supply and Demand 2. 3. 1. Steel Production in Japan 2. Major Steel-Consuming Industries in Japan 3. Orders for Ordinary Steel by Application (Domestic Demand) 4. Ordinary Steel Shipments and Inventories in Japan 5. Steel Export 6. Outlook for the Steel Industry in Japan Recent Actions that may Harm the Global Steel Trade 1

2009/6/8 The Current Japanese Economy 1. Macroeconomic Overview ー Biggest GDP drop in the post war era ー A nnualized rate of G D P change from the previous quater (real: seasonally adjusted) Table1.Quarterly real GDP growth rates by final demand category % (unit: %) 10.0 2008 2009 Final demand category 5.0 1Q 0.0 -5.0 -10.0 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 4Q 1Q Contribution toChange in GDP -0.9 -0.6 -3.8 -4.0 -4.0 Private Consumption 1.4 -1.0 0.1 -0.8 -1.1 -0.6 Private Residential Investment 4.8 -2.0 3.1 5.5 -5.4 -0.2 Private Non-Resi. Investment 1.7 -2.9 -4.4 -6.7 -10.4 -1.6 -5.1 -0.8 1.0 -0.1 0.0 0.0 Exports 2.4 -0.8 1.0 -14.7 -26.0 -4.2 Imports 2.4 -4.2 1.5 3.1 -15.0 2.7 -1.3 -1.5 -1.5 0.7 1.1 GDP Deflator -20.0 3Q 0.8 Public Investment -15.0 2Q Real GDP Source:Cabinet Office Note:The growth rates in the table are shown changes from the previous quarter in real terms. The figures for the third quarter of 2008 are basis of the first preliminary estimates In 1Q/2009 the effective GDP growth rate dropped at annualized rate of 15.2%. This was the largest downturn in Japan’s postwar period and the first time that Japan’s GDP has contracted in four consecutive quarters. Falling domestic demand is the primary cause. There were sharp declines in consumer spending, which accounts for about 60% of GDP, and private-sector capital expenditures, which accounts for almost 20%. The largest postwar drop in Japan’s exports occurred at the same time. The result is a simultaneous collapse in both domestic and external demand. Progress in reducing inventories and production levels is producing signs that the downturn may be ending. 1 2

2009/6/8 FY2009 Additional Economic Measures of Japanese Government (April 10 decision by gov’t and LDP) (Estimates: Trillion y en) I. Emergency measures - Prevent economic collapse Expenditures Total package 4.9 44.4 1. Employment initiatives 1.9 2.5 2. Finantial initiatives 3.0 41.8 3. Moving up projects (unprecedented 80% of public-works projects to start ahead of schedule II. Growth strategy - Investments in the future 6.2 8.8 1. Low carbon revolution (environmental initiatives) 1.6 2.2 2. Public health and child-rearing 2.0 2.8 3. Infrastructure for the 21st century 2.6 3.8 4.3 5.0 1. Regional revitalization, others 0.2 0.4 2. Public safety and peace of mind 1.7 2.2 3. Financial and other support for local governments 2.4 2.4 III. Confidence and vitality IV. Tax revisions 0.1 0.1 Total 15.4 56.8 The stimulus package is expected to add about 2% to effective GDP growth in fiscal 2009, producing demand that creates 400,000 to 500,000 jobs. Measures that may generate demand for steel include a housing loan tax cut, airport and expressway construction, purchase assistance for “green” automobile and energy-efficient appliances. 2 Forecast for GDP Growth in Japan Forecasts for GDP growth GDP growth (FY2010*, forecast) (%) 2.5 2.0 Average of Private forecasts (FY2009: 4.1 2010: 1.0) 1.5 Bank of Japan 1.0 IMF (2009: 6.2 2010: 0.5) (FY2009: 3.1 FY2010: 1.2) 0.5 0.0 7.0 6.0 5.0 4.0 3.0 2.0 1.0 0.0 GDP growth (FY2009*, forecast) (%) * Forecast by IMF is based on the calendar year. Many private-sector research institutes predict a GDP decline of 4% to 5% in FY2009 and growth of about 1% in FY2010. Some institutes are raising forecasts based on Japan’s progress in inventory reductions, the government’s massive stimulus package, the bottoming out of the Chinese economy’s downturn and other factors. 3 3

2009/6/8 Steel Supply and Demand 2. Steel Production in Japan Remarks concerning steel production Crude Steel Production in Japan (%) 100.0 (1,000MT) 12,000 80.0 10,000 Production volume (left scale) 60.0 8,000 40.0 6,000 4,000 20.0 0.0 YoY change (right scale) -20.0 2,000 0 2007. 1 -40.0 -60.0 2008.1 2009.1 Compared with one year earlier, Japan’s crude steel production was down 14.9% in 4Q/2008 and 49.2% in 1Q/2009 and the 2Q/2009 estimate is a decline of 42.6%. We believe the sharp drop in steel production was due to the simultaneous occurrence of the following negative events. 1) Falling domestic demand in Japan Drop in level of activity in major industries Steel users reduced inventories of finished products, work in process and steel Reduction in steel inventories held for distribution 2) Falling overseas demand Drop in level of activity in steel-consuming industries in Asia, a major source of demand for steel exported from Japan Reduction in steel inventories in the international steel market Affection of trade restrictive measures by destination country 3) Reduction in steel inventories at steel producers 4 4

2009/6/8 Major Steel-Consuming Industries in Japan Monthly Data for Major Steel-Consuming Industries in Japan (YoY comparisons) (%) 120.0 100.0 80.0 Shipbuilding starts 60.0 Automobile production volume 40.0 20.0 Ordinary machinery IIP 0.0 Electrical machinery IIP -20.0 Building construction starts (floor area) -40.0 -60.0 -80.0 2007.1 2008.1 2009.1 Activity in the automobile, ordinary machinery, electrical machinery, construction and all steelconsuming industries except shipbuilding started falling in the second half of 2008 because of the global recession. Since shipbuilding sector is also expected to weaken, demand in Japan will probably continue to remain below the levels of one year earlier. 5 Orders for Ordinary Steel by Application (Domestic Demand) (%) YoY comparisons of monthly data 20.0 10.0 Orders (Construction ) 0.0 -10.0 -20.0 -30.0 -40.0 2007.1 2008.1 2009.1 2008.1 2009.1 2008.1 2009.1 2008.1 2009.1 -37.1 20.0 10.0 Orders (Manufacturing ) 0.0 -10.0 -20.0 -30.0 -40.0 -50.0 -46.9 -60.0 2007.1 20.0 10.0 0.0 -10.0 Orders (Dealers) -20.0 -30.0 -40.0 -50.0 -49.3 -60.0 2007.1 10.0 0.0 -10.0 Total domestic demand -20.0 -30.0 -40.0 -50.0 2007.1 -45.3 Orders for ordinary steel started falling rapidly in the second half of 2008. The drop in the manufacturing sector has been particularly steep since the beginning of 2009. Compared with one year earlier, first quarter orders plunged 66.4% in the automotive sector, 72.2% in the industrial machinery sector and 47.8% in the electrical machinery sector. All these declines exceeded downturns in the corresponding industry activity indicators. 6 5

2009/6/8 Ordinary Steel Shipments and Inventories in Japan Domestic Shipment - Volume (1,000MT) (1,000MT) 6,000 (%) Volume & Ratio of Domestic Inventories - Ordinary Steel 7000 5,000 171.4 180.0 6800 160.0 6600 150.4 140.0 4,000 3,424 3,490 6400 Ratio(right scale) 120.0 3,192 3,000 6200 100.0 2,000 6000 5,881 80.0 Domestic Shipment - YoY 5800 (%) Volume(left scale) 20.0 60.0 5600 10.0 0.0 40.0 5400 -10.0 -20.0 20.0 5200 -30.0 -30.2 -40.0 -38.2 -50.0 Jan 2007 Mar May Jul Sep Nov Jan 2008 Mar May Jul Sep Nov Jan 2009 -40.5 Mar P 5,149 5000 Jan Mar 2007 May Jul Sep Nov Jan 2008 Mar May Jul Sep Nov 0.0 Jan Mar P 2009 Domestic shipments of ordinary steel started declining in October 2008. By March 2009, the year-on-year downturn had increased to 40.5%. Inventories in Japan have been falling since peaking at 5.88 million tons in December 2008, further contributing to the downturn in steel production. 7 Steel Exports Volume of exports and Average Unit Price for All Steel Volume of Exports by Destination Country for All Steel Export Average Unit Price - All Steel (USD/MT) 1600 Volume of Exports by Country - All Steel in Q1, 2009 1,462 C.S America N.America 4% 1400 1200 1,131 1000 800 Europe 2% Middle East 3% Africa Pacific 2% 2% 6% Korea 31% 600 (1,000MT) Volume of Exports - All Steel 4,500 4,000 3,500 3,000 2,623 2,500 2,003 1,883 2,000 1,500 S.E Asia 31% China 19% M ar P ov N 20 09 Ja n Ju l Se p M ar M ay ov N 20 08 Ju l Se p M ar M ay Ja n Ja n 20 07 1,000 Total steel exports started declining in October 2008 and were 1.88 million tons in February 2009, only 51.7% of the volume at the March 2008 peak. The average unit price has declined steadily and is currently US 1,131. In Southeast Asia, a major source of demand, there are big declines in steel exports to Korea, China and ASEAN region. 8 6

2009/6/8 Outlook for the Steel Industry in Japan Inventory reductions at steel producers and in the supply chain, a major reason for the drop in steel production volumes, have been largely completed. As a result, steel production in Japan is expected to stop falling in 2Q/2009 and start recovering. However, activity at domestic steel-consuming industries and overseas demand is unlikely to return to pre-crisis levels for a certain period of time. Any recovery will probably be limited for the time being. Changes in the following statistic are of particular importance - Real domestic demand, particularly indirect steel exports - Steel production and exports in China - Situation of trade protection measures involving the steel trade 9 3. Recent Actions that may Harm the Global Steel Trade 7

2009/6/8 AD/CVD Proceedings (Imposition of duty or Investigations started since 2008) Petition Country USA EU Canada China Indonesia India Russia Australia Product Circular Welded Carbon Quality Steel Light-Walled Rectangular Pipe and Tube Circular Welded Austenitic Stainless Pressure Pipe Certain Circular Welded Carbon Quality Steel Line Pipe Oil Country Tubular Goods Certain Welded Tubes and Pipes of Iron or Non-Alloy Steel Wire Rod Certain Seamless Pipes and tuTubes Welded Tubes, Pipes and Hollow Profiles of Square or Rectangular Cross-Section Certain Seamless Carbon or Alloy Steel Oil and Gas Well Casing Certain carbon steel welded pipe Grain Oriented Flat-rolled Electrical Steel Hot Rolled Coil Hot Rolled Plate Cold Rolled Flat Products of Stainless Hot Rolled Steel Products Color Plate Stainless Steel Plate Certain Hollow Structural Sections Date of imposition of Country AD/CVD duty (* Initiation 2008.7.22 China 2008.8.5 China, South Korea, Turkey, Mexico 2009.3 China *2008.4.23 China *2009.4.28 2008.12.19 China China, Russia, Belarus *2008.5.8 *2008.7.9 *2008.11.13 China, Moldova, Turkey China Belarus, Ukraine, Turkey 2008.3.10 China 2008.8.20 *2009.6.1 2008.2.28 *2008.11.5 *2008.11.25 *2008.11.28 China USA, Russia China, Taiwan, Thailand, India, Russia China, Taiwan, Malaysia Japan, China, Korea, Taiwan, Thailand, EU, USA, South Japan, China, South Korea, Thailand, Indonesia, Malaysia, Philippine, Iran, Saudi Arabia, Kazakhstan, Turkey, Russia, Ukraine, Romania, South Africa *2008.3.18 *2009.3.27 *2008.12.18 China, South Korea, Belgium, Finland, Kazakhstan China, South Korea, Taiwan, Brazil, South Africa China, Malaysia 10 Increase of Import Duty Country Date Nov.18, 2008 Outline of Measure Higher import duties for pig iron, semi-finished products, flat-rolled products, and bars/wires/sections. Jan.2, 2009 Higher import duties for TMT bars, structural steel sections, galvanized sheets and ferroalloys (Termination of duty-free status in April 2008). Russia Feb.14, 2009 Increased from 5 points to a maximum of 15 points the duties for some bars and sections, hot-rolled stainless steel sheet, cold-rolled sheet, seamless pipes and tubes, large-diameter line pipe, and other products. Vietnam Apr.1, 2009 Vietnam Ministry of Finance decided to raise import duties from 5% to 8% for billets, 12% to 15% for long products for construction, 7% to 8% for CR, and 12% to 13% for coated sheet. Apr.20, 2009 In response to a Vietnam Steel Association request, Vietnam Ministry of Finance raised the import duty from 0% to 10% for long products with boron added. India 11 8

2009/6/8 Mandatory Standards and Conformity Assessment Procedure Country Philippine Date Jun.19, 2008 Outline of Measure Certification under Philippine standards is required for galvanized sheet and bars/wires/sections. Malaysia Nov.15, 2008 For 57 bar/wire/section products (HS code), started mandatory sampling inspections by SIRIM (Standards and Industrial Research Institute of Malaysia) before goods are imported to confirm compliance with Malaysian or international standards. India Sep.12, 2008 Required compliance with Indian standards for six categories of steel products (wires, bars, etc.) Required compliance with Indian standards for 11 categories of steel products (semi-finished products, heavy plates, galvanized sheet, tin plate, electrical steel sheet, etc.) Feb.12, 2009 Thailand Indonesia 1993 2009 Required TIS compliance for bars, sections, wires, hot-rolled sheets and cold-rolled sheets (total of 19 product categories). May.1, 2009 Strict enforcement of examinations for TIS certification and maintenance of certification (to receive import permit) Despite lack of clarity for details, for examinations to receive or maintain certification, required submission of more documents, audits or factories and/or importers (once each year), and sampling inspections for each import shipment Required Standar Nasional Indonesia (SNI) certification for galvanized sheet used for construction Jan.1, 2009 May.6, 2009 (HRC) Required SNI certification for hot-rolled products (including heavy Jul.6, 2009(Auminum- plates) and aluminum-zinc alloy coated steel sheets zinc alloy coated steel sheets) 12 Safeguard Measures Country Russia Date Outline of Measure Dec.20, 2006 Added 8% special tariff to large-diameter seamless pipes with external diameter of more than 508mm and other products May 14, 2009 Officially started safeguard inspections for secondary steel products (HS 7318). Philippine Aug.11, 2008 Officially started safeguard examinations for angle steel and other steel sections India Apr.9, 2009 Officially started safeguard inspections for hot-rolled sheets (up to thickness of 20mm and width of 2000mm, including HS 7208) Applicants ask for a two-year tariff hike. In addition, applicants declare an emergency and ask for the immediate imposition of a provisional safeguard tariff. 13 9

2009/6/8 Other Import Restrictive Measures Country Measure Date Outline of Measure India Import licensing system Nov.21, 2008 Started licensing system for import of hot-rolled coil (changed import category from free to restricted) USA Buy American Feb.17, 2009 Indonesia Import restrictions Feb.18, 2009 Buy American clause for steel, etc. in the U.S. Recovery and Reinvestment Act Requires use of U.S.-made products for steel and general industrial products in public-works projects conducted under this act. However, this does not apply when (1) the requirement is harmful to the public good, (2) a particular product is not made in the U.S. in sufficient volumes or with adequate quality, or (3) use of U.S.-made products would raise the total cost of the project by more than 25%. In addition, Buy American must be applied in a manner that complies with U.S. obligations under international agreements. Mandates registration of importers and inspections before shipments. Importers must undergo a registration inspection requiring an application to the surveyor that includes the volume of goods to be used over the next year, applications, HS codes and ports where the goods are to be unloaded. In addition, pre-loading inspections are required at the port of departure and import reports must be submitted every three months. Restrictions will expire on December 31, 2010, but they may be 14 The global economic recession has prompted many countries to enact measures to restrict imports. These actions alone may not necessarily be WTO violations. But the enforcement of these measures often lacks predictability and transparency. The result is an effective trade barriers. We ask all countries of the world to comply with the G20 statement in March 2009 that includes a pledge to maintain an open environment for trade and investment. We firmly believe that preserving this environment is vital to the soundness of the steel trade and sustaining global economic growth. 15 10

The Japan Iron and Steel Federation Current Situation of Steel Supply and Demand in Japan 1. The Current Japanese Economy 1. Macroeconomic Overview 2. Japan's Additional Economic Measures for Fiscal 2009 3. Forecast for GDP Growth in Japan 2. Steel Supply and Demand 1. Steel Production in Japan 2. Major Steel-Consuming Industries in Japan 3.

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