Global Steel Trade; Structural Problems and Future Solutions

Collapse of Asian Export Markets
At the time that the reported decision to free up hot-rolled steel production for export was made, demand
for steel in Japan’s traditional export markets in southeast Asia and Korea was strong, as it had been for
most of the 1990s. 91 With predictions for continued strong demand in southeast Asia and Korea, the
decision to expand hot-rolled steel exports to Japan’s largest export market appeared eminently feasible. In
January 1997, NKK decided to reopen its Fukuyama blast furnaces in order to increase hot-rolled steel
exports to Thailand. 92 NKK was not alone. As reported by Nikkei Sangyo Shimbun, “[B]last furnace steel
companies embarked on a clear effort to strengthen exports from 1997 on.” 93
But with the onset of the Asian financial crisis in mid-1997, not only did the possibility of expanding their
exports to its traditional southeast Asian export markets vanish, Japanese producers were suddenly faced
with significant drops in their export shipments to the rest of Asia as the crisis swept from Thailand to
Korea by year’s end. With the entire region in the midst of economic collapse, 1998 exports to southeast
Asia and Korea fell by more than 2 million MT, a decline of 12 percent compared to 1997. Within this
group, the biggest loss was in shipments to Korea, which declined by 800,000 MT. 94
Suddenly in search of a home, the expanded Japanese hot-rolled production could not be absorbed
domestically if high prices in the domestic market were to be maintained. 95 This was compounded by the fact
that domestic demand was
sinking fast as Japan entered a
severe recession. The already
weak Japanese domestic steel
market dropped even further in
1998, as the decade-long decline
turned into an outright collapse.
With the Japanese economy as a
whole contracting by almost 3
percent, apparent consumption
for steel in the domestic market
shrank drastically, falling by 17
percent from the year before. 96
In the face of weak domestic
demand, domestic shipments
were further restrained in order
to maintain price levels. 97
Domestic shipments of major
products fell especially sharply
from the year before: hot-rolled
steel apparent consumption fell
Percent
30
20
10
0
-10
-20
-30
-40
Hot-Rolled Steel*
Cold-Rolled Sheet
Structurals
CTL Plate**
1987 1989 1991 1993 1995 1997
*Hot-rolled steel includes medium plate.
**CTL plate includes only heavy plate from WSD.
Source: World Steel Dynamics, Core Report NNN, pp. 3-24 to 3-25.
3-24. Japanese Apparent Consumption, Steel Products (Percent Change)
nearly 30 percent; cold-rolled steel apparent consumption fell by over 20 percent; and shipments of structural
and plate products both fell by around 15 percent (Chart 3-24). 98
Japanese Producers Set Their Sights on the U.S. Market
The 20 percent increase in production of hot-rolled steel that occurred in 1997, coupled with the 30 percent fall in
domestic consumption in 1998, had predictable results on the export front. Between 1996 and 1998, the percentage
of hot-rolled steel production that was exported rose, from 30 percent to nearly 60 percent 99 (Chart 3-25).
The U.S. market proved particularly alluring for Japanese producers, in light of the relative strength of the
U.S. market compared with Asian markets. Shipments of Japanese steel to the U.S. market quickly surged.
Chapter 3: Behind the Crisis—Japan 81