Japanese prices rise on robust demand

Japanese prices rise on robust demand
02 November 2011


Japanese cement prices have started to rise throughout the country, due to strong demand from the private sector and ongoing reconstruction efforts in the Tohoku region.

At the start of the year, Taiheiyo Cement Corp and other major cement producers began approaching their clients about the possibility of price increases of more than JPY1000/t (US$12.8), due to surging fuel costs. Producers of ready-mix concrete in the Tokyo metropolitan area, where construction demand is high, have already accepted price increases from cement makers of roughly JPY500-700.

Cement makers tried to raise prices last year, but failed due to sluggish demand. The 2008 financial crisis had a significant impact on the cement market, with domestic sales volumes falling for 41 straight months on the year before bottoming out in November 2010.

In the first half through September, sales rose 1.4% on the year to roughly 19.81Mt. However, sales fell sharply in the wake of the March 11 earthquake. "They have since returned to almost the same level as before the disaster," said Keiji Tokuue, president of Taiheiyo Cement.

The Tokyo metropolitan area is leading the recovery, with large redevelopment projects under way in Tokyo’s Marunouchi and Shinjuku business districts, in addition to significant construction demand in areas near major train stations in Chiba Prefecture. As a result, first-half cement sales by volume rose 7.7% on the year in the national capital region.

Price negotiations between cement producers and their clients can be settled relatively quickly, as demand remains high. Producers suspended shipments to clients that failed to reach agreements on increases, as their contracts had expired, which helped to drive up cement prices.

In Tokyo, prices have risen to roughly 10,600 yen per ton, up about 5% from six months ago. Cement prices have also risen in the Tokai and Chugoku regions, where first-half sales jumped from a year before. In the Tohoku region, which was devastated by the earthquake and tsunami, cement sales rose above the previous year’s level for two straight months through September.

In September, cement sales jumped 8% in Fukushima Prefecture and 16% in Iwate Prefecture, due to repair work at facilities such as nuclear power plants and the use of tetrapods in the construction of breakwaters and other coastal barriers.

Disaster-hit port facilities and storage sites used by cement makers have almost fully recovered and are now largely ready to start handling shipments again. With reconstruction demand in full swing, the cement industry predicts that sales volumes will reach roughly 10 million tons within five years.

According to prepayment data for public works projects compiled by East Japan Construction Surety Co. and other similar firms, the value of public works contracts hit JPY28.8bn in Fukushima Prefecture, up 30% on the year. In Miyagi Prefecture, the value of such contracts rose 26.7% to JPY28.6bn.

Cement makers believe that price negotiations will become smoother if credit conditions at construction firms improve, but negotiations have become particularly drawn out in some areas. For example, ready-mix concrete firms went on strike in Osaka last year. Given that opposition to price hikes remains strong, it remains uncertain when these companies will be able to reach agreements with their clients.

The price increases that have been put in place this year still only represent about half of what cement makers were demanding, so producers are now thinking about jacking up prices once again. This will be difficult, however, partly due to the yen’s strength.

"There are also concerns about the hollowing-out of domestic industries, as the corporate tax rate is higher (in Japan) than in other countries," said Kiyoshi Kamimura, an official from the Japan Cement Association.

If capital investment dwindles, it could weigh on construction demand in the private sector. And if the government’s budget deliberations continue to drag on, the launch of reconstruction-related projects will be delayed. Given these circumstances, cement makers will continue to fight to raise prices.


Source: Nikkei Report
Published under Cement News