NEGOTIATOR’S TAKE: High-strength steel components for construction and other machinery should cost less than before.
Sluggish demand for construction materials
TOKYO — Specialty steel prices have fallen to their lowest in nine years due to sluggish demand for construction and mining equipment as building slows in China and resource prices slide. Prices for structural steel – the specialty steel most produced – have been hit hard. SC, a type of carbon steel used in machinery parts, sold recently for around 105 yen (90 cents) per kilogram in Tokyo, down 4.5% from autumn. SCM, a high-strength alloy steel for machine structural use, has grown 4% cheaper at roughly 130 yen a kilogram. Both are priced some 30% less than at their peak before the Lehman shock in 2008. The decline relates to a plunge in demand for construction machinery, the main use of these steel materials. The Japan Construction Equipment Manufacturers Association said shipments in 2015 fell 5.3% from the prior year.
Chinese mine development at a standstill
In addition to slower infrastructure work in China, mine development also is at a standstill due to plummeting prices for such natural resources as coal. Large mining equipment requires enormous quantities of steel, but Hitachi Construction Machinery says it curtailed operations at its main domestic plant to reduce inventories, and the Japan Forging Association reports slower production at companies that process steel materials for use in construction machinery.
Machine tool materials and steel product wholesale procurement
Production of materials for machine tools also has slowed due to sluggish capital spending, forcing a drop in steel product procurement by wholesalers. Falling prices of scrap steel are a factor as well, as electric-furnace steelmakers use it to produce specialty steel materials. The scrap market has plunged 30% since summer due to a drop in the Chinese steel market.
SOURCE: Nikkei Asian Review