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Sat, Nov 27, 2004 - Page 12 News List

China's demand for steel puts automakers on edge

SHORTFALL Automakers are starting to feel the pinch as a result of China's growing consumption, which last year swallowed more than a quarter of the world's steel

AFP , TOKYO

Nissan's unprecedented decision to cut its output temporarily as a result of a lack of steel shows how extreme the world's supply problems have become as China's huge economy consumes ever more basic materials.

China last year accounted for more than 25 percent of the world's steel consumption and analysts believe the shortfall may not be solved until 2006 when the world's largest metallurgical coke factory begins operating in China.

The worldwide problem has become so severe that in Europe, where many had begun to view coal mines as historical relics, German conglomerate RAG said last month it was ready to open up a domestic mine.

Nissan said on Thursday it would halt assembly line production intermittently at three of its four Japanese plants from Monday to Dec. 8 for a total of five days, resulting in a production loss of 25,000 vehicles for Japan's second largest auto-maker.

The problem is not confined to Nissan. Analysts believe Toyota, Japan's top auto-maker and the world's number two after General Motors, and also Honda, number three in Japan, might sooner or later feel the pinch.

"Toyota is clearly aware that the situation is becoming a bit difficult," a Toyota spokesman said.

Toyota also has reduced the types of steel used in its cars from 610 varieties to 500, the spokesman said.

"Toyota and Honda are running at full capacity in Japan, too," said Koji Endo, auto analyst at Credit Suisse First Boston.

"So if Nissan is having trouble finding adequate amounts of steel there is always a possibility" the others are as well, he said.

The Nihon Keizai Shimbun business daily reported yesterday that Toyota was putting a new focus on procuring steel from local sources in Asia to ensure its factories worldwide have adequate supplies.

Toyota will start widespread use in Japan of steel sheets made by South Korea's POSCO and would tap China's Shanghai Baosteel Group Corp for the auto giant's southeast Asian factories, the report said.

European-focused steel-maker Arcelor said it has seen the price of iron ore rise 30 percent in two years, the cost of scrap metal gain 100 percent in a year and the price of coke jump 400 percent in the past year.

Arcelor said it has helped keep supply running in Europe by giving priority to its traditional customers on the continent rather than China.

In July, Japanese trading house Itochu, Chinese coal maker Yankuang and Brazilian mining giant Companhia Vale do Rio Doce said they would build the world's largest factory for the coke used in steel making in Shandong province to open in 2006.

"It'll be around that time that problems in the availability of basic materials will be resolved and control over volumes will be back in the hands of the material producers," Deutsche Bank analyst Pascal Spano said.

Until then, tensions will remain.

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