Japan’s Crude Steel Output Faces Major Challenges in 2025: Economic Slowdown & Sector Weakness
Synopsis: Japan's crude steel output is set to fall by 2.4% in the first quarter of 2025, driven by slow demand from key sectors like manufacturing and construction. With annual production expected to drop 3.6%, the country faces a challenging year ahead. However, a recovery is anticipated later in 2025, spurred by growth in the automotive and machinery sectors.
Japan's steel industry, the third-largest in the world, is grappling with an uncertain outlook for 2025, as crude steel output is expected to fall by 2.4% in the first quarter of the year. According to the Ministry of Economy, Trade, and Industry, Japan’s crude steel output in January-March 2025 is forecasted to total approximately 20.93 million metric tons, a decrease from 21.45 million metric tons produced during the same period in 2024. This marks a challenging start to the year for an industry that has struggled with weak demand in recent quarters, mainly due to slowdowns in critical sectors like manufacturing and construction.
The projected decline in crude steel production will result in a 3.6% year-on-year decrease in Japan’s total annual steel production for the fiscal year 2024-2025. Japan is expected to produce 83.72 million metric tons of crude steel, marking the lowest output since fiscal 2020 when the COVID-19 pandemic severely disrupted global supply chains and industrial activity. At that time, steel consumption plummeted across the world as economic activity ground to a halt. While the current slowdown is not as dramatic as during the pandemic, it still highlights the ongoing vulnerabilities in the Japanese steel market.
According to Manabu Nabeshima, director of METI’s metal industries division, the slump in steel production is largely attributed to the weak demand from Japan's manufacturing and construction sectors. Both of these sectors are major consumers of steel, particularly for structural components, machinery, and automotive parts.
In the manufacturing sector, the demand for steel products has been held back by softening industrial output and the ongoing challenges faced by manufacturers, particularly in the automotive industry. Japanese automakers, which rely heavily on steel for production, have been facing reduced consumer demand both domestically and internationally. Additionally, the construction sector in Japan has struggled with rising material costs, labor shortages, and sluggish infrastructure development, all of which have contributed to the fall in demand for steel used in building projects.
The housing market, in particular, has shown signs of weakness, with fewer new construction projects being initiated due to high interest rates and the economic uncertainty surrounding global markets. These developments have resulted in lower-than-expected steel consumption in both residential and commercial construction.
In addition to the domestic slowdown, Japan’s steel exports are also expected to face difficulties in early 2025. METI forecasts a 0.4% decline in steel exports for the January-March period, which would exacerbate the overall decline in production. Japan, which exports a significant portion of its steel, faces increased competition from China and other lower-cost steel producers, making it difficult for Japanese steel to maintain its market share in international markets.
This decline in exports is also related to weak demand from overseas markets. Countries in Europe and Asia are facing their own economic challenges, reducing the appetite for steel imports. The U.S., while still a key destination for Japanese steel, is seeing rising steel production from its own mills, reducing its reliance on imports.
Despite these challenges, there is a silver lining on the horizon. The Japan Iron and Steel Federation has suggested that Japan’s crude steel production will see a slight recovery as the year progresses. The industry group has forecast that production will rise by 4.1% in fiscal 2025, with 86.5 million metric tons expected to be produced, which would mark the first increase in steel production for Japan in four years.
The expected recovery in crude steel production is primarily driven by a rebound in demand from key industries such as automobiles, industrial machinery, and electrical equipment. The automotive sector in Japan, which is one of the largest consumers of steel, is expected to see growth in 2025. Automobile production is projected to increase by 1.8%, reaching 8.9 million units as demand picks up both domestically and in export markets. Japanese carmakers have been focusing on new technologies, including electric vehicles, which require specialized steel for production. As EV production ramps up, the demand for certain types of steel, particularly lighter, high-strength steel, will increase.