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Steel production falls %40

Steel production falls %40
Japanese monthly steel production has plummeted almost 40 per cent in the past four months, an ominous indication for Australian iron ore and coking coal producers in the midst of annual contract talks.

Japanese monthly steel production has plummeted almost 40 per cent in the past four months, an ominous indication for Australian iron ore and coking coal producers in the midst of annual contract talks.

Japanese monthly steel production has plummeted almost 40 per cent in the past four months, an ominous indication for Australian iron ore and coking coal producers in the midst of annual contract talks. The Japan Iron and Steel Federation reported yesterday that January crude steel output fell a record 37.8 per cent year-on-year to 6.37 million tonnes.

Since September, when Japanese output reached a recent peak of 10.36 million tonnes, monthly output has fallen 38.5 per cent.

The fall reflects capacity reduction by the steelmakers in the face of even more brutal production cuts by their major customers, especially Japanese car manufacturers, whose January domestic sales fell by 20 per cent. "Demand for cars and all other products fell sharply during the month. Exports also declined," the federation said.

The five largest steelmakers are estimated to be cutting their production for the six months to March 31 by 10 million tonnes.

Slumping orders in Japan and Korea are also hurting the Chinese steel industry, which experienced a 40 per cent drop in January shipments to its two largest export markets.

Nippon Steel, the world's second-largest manufacturer, is cutting March quarter production by 40 per cent to 5 million tonnes, but hopes to bring two blast furnaces back into production in the second half of 2009.

With Arcelor-Mittal, the world's largest producer, cutting current quarter output by 45 per cent and expecting world demand in 2009 to shrink by up to 10 per cent, the industry's best hope is that the steepest cuts ever in global supply will rebalance steel markets in the second half of 2009.

However, the dramatic slump in Japanese production without any corresponding improvement so far in prices, or tightened supply, bodes poorly for Australian miners as they reach the nub of price and volume negotiations for contracts taking effect from March 31.
The big iron ore producers had taken heart from a recent mild improvement in world market conditions driven mainly by prospects for Chinese domestic stimulus this year.

However, the continuing large Japanese steel cutbacks will bolster the case of the Chinese mills, which are this month conducting the standard-setting iron ore talks, seeking 30-40 per cent cuts for last year's benchmark price of $US95.50 a tonne.

Japanese steelmakers are understood to have started coking coal contract negotiations this week with Australian and Canadian producers.

According to Macquarie Bank, the mills want to reduce the benchmark price to $US98 a tonne, after severe supply restriction in Queensland last year drove it to $US300 a tonne. Macquarie forecasts this year's price will settle at $US110.

www.TurkishMaritime.com.tr

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