Posted on 09 Dec 2015
Steel prices are declining worldwide, driven by excess output in China,
by far the world's largest producer, and a sharp rise in the country's
exports.
Koji Kakigi, president and CEO of Japanese steelmaker JFE
Steel, warned in a recent interview that the global glut is unlikely to
disappear soon, saying it will take time for China to squeeze out excess
capacity.
Q: China's annual steel exports are likely to top 100 million tons this year. What is your view on that?
A: When it comes to the steel market, China faced a turning point in 2014. Domestic demand for steel weakened as the economy slowed, while steel production rose. As a result, exports surged by 32 million tons in 2014 from a year earlier to 94 million tons. As for this year, crude steel production is expected to shrink by about 10 million tons from a year earlier to 810 million tons. But domestic demand is also expected to remain weak, at around 690 million tons. Exports will increase to about 110 million tons. The problem for Japanese steelmakers is that China has not only sharply boosted exports, but also further cut export prices in the second half of this year, disturbing international market conditions. As a result, Japan's export prices have also dropped. The Japanese steel industry's profitability has deteriorated to levels not seen since the second half of the 1990s, when the nation's blast-furnace steelmakers came under pressure to consolidate.
Q: Will China continue to export steel at low prices?
A: China's steel companies are expected to lose a combined 1 trillion yen ($8.05 billion) this year. This situation will not be sustainable for long, despite government subsidies. Abnormally low prices will be corrected. But if China is to deal with the issue of excess plants, it will have to create jobs for surplus workers in the steel industry. It will take time for China to resolve the issue.
Q: A growing number of countries are taking measures to cope with cheap imports from China, including imposing anti-dumping duties. What is your view on that?
A: Many countries' steel industries have been hit (by cheap imports from China). Japanese steel products have also been subject to anti-dumping duties. But as long as the countermeasures are in line with World Trade Organization rules, they are unavoidable to a certain extent.
Q: Do you believe the economic slowdown in emerging markets, especially China, will drag on?
A: The world's annual crude steel production is approximately 1.6 billion tons. China accounts for half of the total. An economic slowdown in China has a significant impact (on the global economy). Emerging markets that are exporting construction equipment and automobiles to China also suffer. The Indian economy is humming along, with steel production remaining strong. But the economies of Southeast Asian countries such as Thailand and Indonesia are performing poorly. To be sure, there are still some concerns that China's economic conditions might worsen significantly. But I do not expect the Chinese economy will remain stuck in the doldrums for a long time as it did between the 1980s and 1990s when steel output stopped growing. India and many other emerging markets have huge growth potential. They are expected to grow moderately.
Q: The Japanese government is urging domestic companies to boost capital spending to spur growth. What is your view on that?
A:
Japanese companies' capital investment is not growing as much as
initially planned, largely because of concerns over the Chinese economy.
If these concerns are dispelled, capital investment will regain
momentum. Our company plans to allocate a total of 650 billion yen for
capital investment in Japan between fiscal 2015 and 2017, an increase of
170 billion yen from the previous three-year period.
