Nippon Steel says demand recovery still weak

Nippon Steel Corp, the world's second-biggest steelmaker, said demand for steel has been improving but the recovery lacks strength, despite some bright signs that Japanese manufacturers are gearing up production.

Nippon Steel said its crude steel output will likely increase to nearly 6 million tonnes in July-September, up some 30 percent from the current quarter, when crumbling steel demand on the global market is forcing it to operate plants at 55-60 percent capacity.

''We haven't seen a solid recovery in demand yet,'' Shinichi Taniguchi, executive vice president of Nippon Steel, told Reuters in an interview.

''The tempo of the recovery has been slower than what we expected at the end of April for sectors like construction and manufacturing, including autos. Shipbuilders are slowing down construction and export markets are shifting into a lower gear than what we expected,'' he said.

Growing signs that the economy appears to be over the worst of its slump and that automakers and some electronics makers are gearing up production have boosted shares in the steel sector.

Nippon Steel stock has risen nearly 30 percent this year, buoyed also by news that it and other Japanese steelmakers have agreed to a 15 percent cut on auto sheet with loss-making Toyota Motor Corp -- about half what the market anticipated.

Toyota, the world's biggest carmaker, and Honda Motor Co have reported strong demand for their hybrid cars, helped by government subsidies, while Toshiba Corp was reported late last month to be ready to reverse some chip output cuts.

Taniguchi said strong demand for the Prius hybrid is a welcome sign, but the smaller cars consume less steel than luxury cars.

Taniguchi said the company aims for a recurring loss, which is before taxes and extraordinary items, of 100 billion yen ($1 billion) in the first quarter as planned.

He also said an overhang of its semi-finished steel inventory will be wound down by the end July, helping the company to raise output to match demand.

The company expects the capacity utilisation rate to rise to nearly 70 percent in July-September.