Top News 5 Page  1    How Long Will the Boom in Steel Continue?   | FEB. 1. 2005 |    According to the latest revised forecasts of consolidated operating performances for this fiscal year (FY2004) that were announced between late August and early September 2004 by Nippon Steel Corporation, JFE Holdings, Inc., Sumitomo Metal Industries, Ltd., and Kobe Steel, Ltd. the consolidated current incomes of these four blast furnace steel manufacturers combined is expected to become 910 billion yen, greatly exceeding the past high of 577.6 billion yen marked in FY1989 during the bubble economy, Some are seeing this as a restoration of the status of the steel industry, but it is still unclear how long this boom will continue.    The factor for this rapid recovery in the operating performances of these blast furnace steelmakers is the growth of the Chinese market.    Consolidation of the major suppliers of iron ore advanced on a global scale from the late 1990s to the early 2000s. Not only did the iron ore supplier framework become an oligopolistic system comprised of three companies, oligopoly also advanced in the supply of coal for coke making. Furthermore, reorganization also advanced in the automobile industry from the late 1990s, including capital alliances between Nissan Motor Co., Ltd. and Renault S.A., and between DaimlerChrysler AG, and Mitsubishi Motors Corporation. As blast furnace steelmakers were sandwiched between the demands of upstream suppliers and downstream customers and were losing their grip on price negotiating power, the so-called Ghosn Shock erupted in 2000, after which the operating performances of various blast furnace steelmakers deteriorated across the board. Symptoms of Changes for the Worse Beginning to Appear in the Chinese Market    However, NKK Corporation and Kawasaki Steel Corporation consolidated their business in September 2002 by establishing themselves under JFE Holdings. The other three players also reached agreement in late 2002 for alliance and cross-ownership of minority stakes. While there were once five blast furnace steelmakers in Japan, there are now two major groups - one led by Nippon Steel and JFE Holdings the other - as a result of the advancement of reorganization. Negotiating power was enhanced relative to these moves. In FY2003, thanks to a tightened supply-demand situation and the favorable effects of consolidation, blast furnace steelmakers succeeded in raising their prices against automobile manufacturers for the first time in five years. In FY2004, which saw the sharp appreciation of the price of iron ore and raw coal, blast furnace steelmakers were able to implement price reforms for automotive steel sheets twice (in spring and autumn) in a single year, something quite extraordinary. Meanwhile, symptoms pointing toward changes for the worse are undoubtedly beginning to appear in the Chinese market.    There was a big surge in domestic demand for steel in China (apparent consumption; namely domestic production plus imports, minus exports) beginning in 2002 when it marked 185.6 million tons, which swelled further to 232.4 million tons in 2003. While 2004 started off at a pace that would have resulted in a domestic demand level of about 250 billion to 260 billion tons, a credit squeeze resulted in the depreciation of the spot price of construction-use steel products between April and May. On top of this, Chinese import of steel sharply in July and August. The Steel Boom Will Continue Barring the Occurrence of Any Unforeseen Events    In the case of construction-use steel products, China has a self-sufficiency rate in steel bars, etc. that exceeds 100%. Concern is starting to arise regarding price declines in the export market for such products. However, the dominant view is that there will be little effect on blast furnace steelmakers.    The volume of steel exports from Japan to China in 2003 was 69.2 million tons, accounting for only 18% of Japan's overall steel exports. Furthermore, the majority of Japan's steel exports to China are for products related to automotive and electric steel sheets, materials that cannot be procured in China. Nobuyoshi Fujiwara, Managing Director of Nippon Steel, said that in terms of outlook, investment in construction will eventually slow down in China. Furthermore, while growth in automobile manufacturing is also beginning to level out at the present time, it will grow again with an increase in the number in those in China able to purchase automobiles as a result of an appreciation of personal income. He added that favorable growth is expected to continue for shipbuilding steel, with an increase in the volume of exports to China.    There is little possibility that the tight supply-demand situation seen today will collapse in the immediate future. It is highly likely that the good operating performance being marked by blast furnace steelmakers will continue, barring the occurrence of an unforeseen event.