Manufacturing slowdown intensifies in Japan

The slowdown in manufacturing in Japan that had resulted from the outbreak of Covid-19 is intensifying, signalling a greater potential downturn in steel demand over the coming months.

Major car manufacturers in Japan have begun implementing planned output cuts at their domestic assembly plants, to weather falling global demand in the wake of the coronavirus pandemic. Toyota Motor, the country's biggest car maker, in late March announced its first-ever major suspension of domestic production lines.

But the market deterioration is not showing any signs of abating in the foreseeable future, forcing Japanese car makers to advance or extend additional production line closures. Subaru has extended its planned stoppage of domestic car output by two days to a total of 19 days between 9 April and 1 May, citing further disruption in parts supply. Mitsubishi Motors has also delayed planned restarts of its major production lines by four to 10 days this month.

Falling car output has forced Japanese steel makers to curb steel output. The country's industry ministry (Meti) has projected steel demand from the domestic car sector at 2.6mn t in April-June, down by 8pc from a year earlier and down by 6pc from January-March.

Meti on 9 April forecast the country's April-June crude steel output to decline by 26pc from a year earlier to 19.4mn t, the lowest quarterly output in 11 years since April-June 2009. The ministry did not rule out the possibility of a further output decline during the quarter with potential Covid-19 impact only partially taken into account.

Japan's biggest steel mill Nippon Steel is planning to halt two blast furnaces later this month but could further curtail steel production if demand continues to weaken.

"We are facing unprecedented tough times as there are fears that the manufacturing slowdown is spreading across sectors and globally," Japan;s iron and steel federation chairman Yoshihisa Kitano, also president of JFE Steel, said late in March.

The downturn in Japan's car manufacturing is beginning to have a ripple effect on other manufacturers, adding further uncertainty to Japanese demand for steel materials. Kawasaki Heavy Industry today halted domestic assembly of motorcycles until 6 May in the wake of a sales decline in major global markets. Yamaha Motor is also planning to suspend production of motorcycles and its related components and outboard motors for eight and 16 days respectively during May.

The manufacturing sector, including motor vehicles, ships and industrial machinery, accounts for around 60pc of Japan's ordinary steel output, while the construction sector accounts for the rest.

General contractor Nishimatsu Construction also plans to halt all ongoing construction and development projects in-principle until 6 May. This move also comes in response to the country's declaration of a national emergency in major consumer and industrial areas.

Japan on 8 April began a month-long state of emergency in Tokyo and six other prefectures to stop the spreading coronavirus. But the number of confirmed cases in the country has since doubled to more than 7,000, with additional prefectures such as Aichi, Kyoto and Hokkaido implementing their own sets of measures.

The Japanese government has unveiled a ¥108 trillion ($1 trillion) stimulus package to aid emergency restrictions and to also boost Japan's post-coronavirus economy. The proposed package includes more than ¥240bn to subsidise the manufacturing sector to develop more resilient supply chains. Meti is expected to allocate ¥220bn to Japanese manufacturers to relocate their production facilities back to Japan and ¥24bn to diversify their production bases to multiple countries.

By Rieko Suda