Nippon Steel doubles production cuts

Nippon Steel Corp, the world's second-biggest steelmaker, said on Friday that it would double its planned output cuts for the October-March period in response to slowing demand for Japanese cars and machines.

Steelmakers including No.1 ArcelorMittal, .fourth anked POSCO and Japanese rival JFE Steel Co of JFE Holdings Inc, have also announced output cuts.(See: Steel slowdown: Chronology of production cuts)

Nippon Steel president Shoji Muneoka told a news conference the company now expects to cut output by 4 to 4.5 million tonnes in the October-March second half of the business year, a record high and up from previously announced plans to cut by 2 million tonnes. A reduction of 4 million would cut output by about a quarter from the 16.5 million tonnes produced in the first half.

"Japanese carmakers and other clients have been further reducing output since the turn of the year, as they grapple with high levels of stocks," Muneoka said. "We need drastic output cuts to reduce our own stocks and prop up the market."

He reiterated that Japan's steel market wouldn't start recovering until April at the earliest, after automakers' stocks are lowered to appropriate levels and they boost production to match real demand. "We are now seeing the worst," he added. The drop is the biggest since the company was set up in 1970. It had initially planned to produce 33 million tons for the fiscal year ending March 2008.

Japan's steelmakers have been hammered by the downturn at Toyota Motor Corp., the world's biggest automaker, and other manufacturers. Toyota's global sales fell last year for the first time in 10 years, dropping 4 per cent to 8.972 million vehicles, as sales plunged in the key markets, including the US, Europe and Japan. Toyota is forecasting its first operating loss in 70 years, virtually the automaker's history, for the fiscal year through March. Toyota's earnings are being hurt by the appreciation of the yen, as well as by sliding sales.

In the early part of last year, Japanese steelmakers had been on a roll because of surging steel prices and growing demand for cars in emerging markets like China. Now, as the US financial crisis deadens consumer demand for vehicles, Nippon Steel said some furnaces will be temporarily shut down, and the stoppage of the one in Oita Prefecture, southwestern Japan, will be moved up a month to February.

Shares of Nippon Steel closed down 5 per cent at 265 yen in line with the iron and steel sub-index.