Japan's NSSC sees stainless output down

By Chikafumi Hodo

TOKYO (Reuters) - Japan's stainless steel production could slow slightly from the second half of 2007 as domestic mills adjust stocks after a sharp build-up last year, a senior official of Japan's top stainless producer said on Wednesday.

Prospects of a weaker global economic growth this year could hurt output, but robust demand from domestic auto and electronic machinery sectors would keep domestic output at a high level, Yosuke Sakai, manager of corporate management at Nippon Steel & Sumikin Stainless Steel Corp. (NSSC) told Reuters.

Sakai also said surging Chinese production capacity could cause global supply glut unless China makes an effort to control output to avoid oversupply.

"Last year, production increased as companies raised stocks and at the same time a strong economy has pushed up demand, leading mills to run at full capacity," Sakai said.

"But considering the global economy is not expected to be strong this year compared with last year and also due to the fact that Japanese firms don't have to pile stocks this year, we may be in a phase of adjustments in production," Sakai said.

Japan's output of hot-rolled stainless steel products rose 2.5 percent to 3.67 million tonnes in 2006 from 3.58 million tonnes a year earlier, Japan Stainless Steel Association said.

NSSC shipped 1.06 million tonnes of stainless last year.

Japanese stainless steel makers, which have been running at full tilt since a year ago, are entering a phase of drawing down stocks.

NSSC has been accepting fewer spot orders for April and May in order to avoid inventories piling up, Sakai said.

Sakai said domestic production will not fall sharply as demand from end-users, including car makers, remains strong.

Unlisted NSSC is a joint venture between top Japanese steel maker Nippon Steel Corp. (5401.T: Quote, Profile, Research, Stock Buzz) and the third-ranked Sumitomo Metal Industries Ltd. (5405.T: Quote, Profile, Research, Stock Buzz) formed in 2003.

Sakai said surging production capacity in China could be a threat to cause global supply glut unless the country takes measures to control output.

China, the world's top stainless producer, was estimated to have produced more than 5 million tonne of stainless steel in 2006. China is seen capable of producing about 7 million tonnes of stainless this year with additional facilities, industry sources said.

"The presence of China has increased greatly in the last few years. There is more capacity in China and there is nothing that we can do about it," Sakai said.

"But the important thing for China is that it needs to become very sensitive in production. It has to make to sure to produce in line with the demand," he said.  Continued...