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Production pruning - Nippon Steel to consider deeper output cuts

Bloomberg reported that Nippon Steel Corporation may double its planned production cuts by closing a blast furnace for maintenance as the global recession damps demand. As per report, Nippon Steel is considering idling a 2.4 million tonne capacity furnace at its Kimitsu plant that was due for maintenance in 2012. The mill said on November 25th 2008 that it planned to lower output by about 2 million to 2.2 million tonnes in the six 6 to March 31st 2009 as compared with the first half.

Nippon Steel is discussing halting the furnace to prevent a plunge in prices as demand drops from vehicle makers and builders. Toyoto Motor Corporation expects its first annual operating loss in 71 years as sales in the US, Europe and its domestic market plunge. JFE Steel Corporation said last month it would cut production to 26% below first half output.

Mr Atsushi Yamaguchi analyst at UBS AG in Tokyo said that "There is a high possibility that Nippon Steel will choose to halt the furnace. Japanese major mills like Nippon Steel place importance on the stability of the steel markets."

Mr Hiroshi Nakashima, public relations manager at Nippon Steel said that it had not decided if it would close the furnace and deepen cuts. He added that a JPY 10,000 drop in steel prices will reduce Nippon Steel’s sales by JPY 300 billion. Maintenance costs for a furnace would be about JPY 30 billion.

Mr Manami Ono analyst at Okasan Securities Co in Tokyo said that the company will need to cut production by 5 million tonnes as Japan’s domestic crude steel output is expected to fall by 10 million tonnes to less than 110 million tonnes for the year to March 2010. He added that "Nippon Steel will need the closure of a furnace."

Jan 12, 2009 13:32
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