[Ferro-Alloys.com] Japan's manufacturing activity could have hit its Covid-19 floor in May, with factory output rebounding to support steel and metals demand over the coming months. But the recovery remains vulnerable as coronavirus infections are on the rise in some areas including Tokyo.

 

The country's factory output index in May fell by 8pc from April to 79.1 as activity slowed across the manufacturing sector, including the auto and steel industries. The seasonally adjusted index for May hit the lowest level since March 2009 during the global financial crisis, according to the trade and industry ministry (Meti).

 

The fall in May slowed compared with April, when the index dropped by 9.1pc from the previous month to 87.1 against the 2015 base of 100. Manufacturers surveyed by Meti in early June also projected factory output to increase by 5.7pc in June and by 9.2pc in July compared with previous months, signalling firmer sentiment particularly among auto and machinery producers.

 

Japan's domestic vehicle output tumbled to 287,502 units in May, posting a record 62pc year-on-year drop compared with the previous record of a 60pc fall recorded in April 2011 following the 2011 March earthquake and tsunamis that devastated northeast Japan. The sharp fall in Japanese vehicle production has also forced output cuts on steel mills and metals fabricators to levels last seen during the global financial crisis of 2008-09.

 

The steel industry, one of the most severely hit sectors by the Covid-19 downturn, has projected the country's crude steel output during the April 2020-March 2021 fiscal year to fall below 80mn t, a level last seen in the late 1960s. Crude steel out hit 98.4mn t in 2019-20, the lowest since 96.4mn t in 2009-10.

 

Nippon Steel plans to extend crude steel output cuts into July-September by shutting down two additional blast furnaces next month.

 

Japanese auto producers are planning to maintain output cuts in the coming months. But some, including Toyota, have disclosed plans to gradually restore domestic output after July, encouraged by a solid recovery in consumer demand following the lifting of Covid-19 emergency measures in late May.

 

But Meti is more pessimistic, saying manufacturing activity still could have weakened in June. Output cuts by steel, metals and paper manufacturers added pressure on overall factory activity during the month. Factory output is more likely to rebound in July, possibly to April levels at the most, Meti added.

 

A risk of a second wave of coronavirus infections also threaten the stuttering manufacturing recovery as Japan continues to report new Covid-19 cases, particularly in Tokyo and its surrounding areas. The number of daily infections has hovered around 100 over the past few days, with Tokyo accounting for around half of the total. But the country's chief cabinet secretary Yoshihide Suga said the government has no immediate plan to declare a state of emergency, while it continues to monitor the situation.

 

Source: Argusmedia