July 2, 2014 / 7:46 AM / in 3 years

UPDATE 1-Govt forecasts climb in Japan crude steel output

3 Min Read

* July-Sept steel output seen at 27.96 mln T

* Up from year earlier, previous quarter

* Steelmakers say minimal impact from sales tax hike (Adds comment, detail)

TOKYO, July 2 (Reuters) - Japan's crude steel output is expected to rise 0.9 percent in July-September from a year earlier on solid demand from shipbuilders and infrastructure projects, the government said on Wednesday.

The increase follows an estimated 0.5-percent fall in the April-June quarter when a hike in sales tax crimped appetite for steel, said the Ministry of Economy, Trade and Industry (METI).

"Manufacturing appetite is likely to hold steady as shipbuilder demand is seen recovering and automobile sales may get a boost in the summer bonus season," Ryuichi Yamashita, director of the ministry's iron and steel division, told a news conference.

"Construction demand will drop in reaction to rushed demand ahead of the sales tax hike and due to labour shortages and higher labour costs," he added.

Steel output for the July-September quarter is projected to rise to 27.96 million tonnes from 27.72 million tonnes a year earlier. That is up slightly from 27.95 million tonnes in the previous quarter.

Investors have been closely watching the impact on the economy of the sales tax hike that went into effect on April 1, with top officials at steelmakers saying that any effects had been mild.

"For April and May, the effect from the tax hike was smaller than expected," said Hiroya Kawasaki, President of Kobe Steel Ltd, Japan's No.3 steelmaker.

"We still need to be cautious, but given an expected recovery of demand after July, Japan's overall crude steel output for this fiscal year may exceed the steel federation's prediction," he said.

Japan's crude steel output rose to its highest in six years at 111 million tonnes in the year ended March 31 on robust construction demand, but the Japan Iron and Steel Federation has predicted it will weaken slightly this fiscal year due to the sales tax hike.

Demand for steel products, including for export, is expected to fall 2.9 percent to 24.25 million tonnes in July-September compared with a year earlier, the ministry said, citing an industry survey.

Exports are seen declining 4.2 percent to 8.21 million tonnes, according to the ministry.

"Due to continuing oversupply in Asia, the export environment will remain tough for Japanese steelmakers," METI's Yamashita said. (Reporting by Yuka Obayashi; Editing by Chris Gallagher and Joseph Radford)

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