High Yen, Global Economic Trouble Hinder Japan's Steel Industries, Helps Mining Investments

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Researched by Industrial Info Resources East Asia (Kofu-shi, Japan)--Japan's gross domestic product (GDP) expanded an annualized 6% during the third quarter of this year, following three straight quarters of contraction. The growth has been pegged on a rise in domestic demand, however the record high yen and economic problems elsewhere in the world are already dampening third-quarter growth. Flooding in Thailand has also served to slow Japanese growth this quarter, and has affected the automobile, steel and electronics industries.

Contraction of the Japanese economy along with the high yen has hit Japan's steel industry hard. Exports have fallen, while domestic demand, expected to rise with reconstruction efforts, continues to lag. While Japanese steel makers boost capacity overseas, they are stagnating in the domestic market. Nippon Steel Corporation (TYO:5401) (Tokyo) has chosen to suspend the production of four of 20 steel galvanizing lines throughout Japan.

Earlier, JFE Steel Corporation, subsidiary of JFE Holdings Incorporated (TYO:5411) (Tokyo), announced that it would be consolidating four of its group electric arc furnace steel companies on the account of increased competition and decreasing domestic demand. JFE plans to merge Tohoku Steel, JFE Bars and Shapes, Daiwa Steel and Toyohira Steel by the second quarter of next year under the name JFE Bars and Shapes Corporation. Two facilities, those under Tohoku Steel and JFE Bars and Shapes, will not be reopened following clean-up from the Great East Japan Earthquake Disaster.

In some ways however, the high yen has been beneficial as companies turn their eyes abroad. Japanese companies are investing in foreign projects, such as mining ventures, thus taking advantage of the high yen. Subsidiaries of Mitsubishi Corporation (TYO:8058) (Tokyo), for example, are purchasing shares in foreign mining projects in Chile and Queensland, Australia, while Mitsui & Company (NASDQ:MITSY) (Tokyo) is also investing in a Chilean copper project. Economic problems in places such as the European Union (EU), which are hurting Japan domestically, are helping investors as EU companies are aiming to sell shares.

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