2008 Indicators Positive for Japan, Good for South Korea

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Researched by Industrial Info Resources (Sugar Land, Texas)--Japanese steel production is expected to increase by 1.4% year over year from now until the end of the year to total 27.7 million tons for the quarter. The Ministry of Economy, Trade and Industry said demand for the same period is estimated at 30.1 million tons of raw steel output, which is 0.2% lower than the same period in 2006. Total production for the year should reach 119.5 million tons, topping the previous annual record of 119.3 million tons set in 1973.

Growth in the country’s gross domestic product (GDP) is likely to move down to 1.9% in 2008 from 2% in 2007, even though 2007 entered the last quarter with signs that confidence among manufacturers remained steady after predictions said the outlook was going to decline. Demand from China, India, Southeast Asia and the Middle East seems to have offset a weakening in orders from the U.S. and the West and Japan’s heavy-engineering and energy-project-based companies are representing a competitive stance in the eastern markets.

At the end of September the quarterly Tankan survey forecast spending by large firms on fixed assets, including land purchases, to rise by 8.7% in the 2007 fiscal year, representing a gain of 0.9% over the June forecast. Spending on fixed assets by small firms was forecast to decline 10.5%, an improvement from the 16.3% June forecast. As the Bank of Japan uses the Tankan as a guide to setting monetary policy, the stronger-than-expected data could boost the case for further tightening the monetary policy.

In August, industrial output rose 3.4% to a record high driven by auto (major steel consumers) and electronics manufacturers. Export of goods had been forecast by Mitsubishi Securities to increase by 7.2% in 2008, and industrial production growth was expected to grow 3.2%. Recovery in output is expected to push up corporate profits, and the impact on input price increase will gradually ease.

Japan has the world’s second largest economy after the U.S. and the second-largest steel output after China. The country is poor in natural resources and is a competitor in the current international race to secure sources on minerals and fuel to power its industry. The country’s major presence as a trade partner throughout the world is boosted in key resource-rich regions, such as Africa by its prominent aid and foreign direct investment (FDI) record. Japan’s style differs from the Chinese build-and-buy approach in terms of approach and product sophistication, but it is proving to be effective in less-developed and developing nations when striking long-term resource-supply relationships. It is the major player after China in the imported iron ore pricing round.

The country’s nuclear power industry is using a strong domestic market platform to strike international alliances to take advantage of the boom in the construction of nuclear power stations. This is of direct benefit to its heavy-engineering and power-construction companies. Middle Eastern connections are strong with project development in the hydrocarbon sector with power and desalination projects anchoring a flow of oil to feed the economy. Eight LNG terminals are scheduled for construction over the next five years. The terminals are expected to boost LNG as a source of power generation from 43% to 47% of the national total over thermal-based power. As the home of the Kyoto initiative, Japan has set a target of slashing CO2 emissions per kilowatt generated by 20% by 2010 from 1990 levels.

In many global heavy-engineering and power-related project tenders, Japanese companies are in direct, and sometimes tense, competition with South Korea’s heavy-engineering majors. South Korea’s government remains confident that the country’s GDP will grow at a very healthy rate of 5% in 2008, unaffected by U.S.-based financial jitters. Monetary policy, export strength, domestic consumption and inflation look set to be in a virtuous circle through 2010. Another plus for South Korea’s heavy and manufacturing industries could be the continued opening up of relations with North Korea, leading to a new schedule of industrial development projects.

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