mizuho 1038 non-ferrous-metals

Table of Contents

1, Comprehensive Industry - Japan

2, Iron and Steel - Japan

3, Non-ferrous Metals - Japan

4, Paper and Pulp (Japanese only)

5, Cement - Japan

6, Chemicals - Japan

7, Pharmaceuticals - Japan

8, Petroleum - Japan

9, Automobiles - Japan

10, Shipbuilding (Japanese only)

11, General Machinery (Japanese only)

12, Electronics - Japan

13, IT Services - Japan

14, Telecommunications - Japan

15, Broadcasting (Japanese only)

16, Marine Shipping (Japanese only)

17, Logistics - Japan

18, Electric Power - Japan

19, City Gas (Japanese only)

20, Retail - Japan

21, Food and Beverage - Japan

22, Food Service Industry - Japan

23, Construction (Japanese only)

24, Real Estate and Housing - Japan

25, Travel and Tourism - Japan

26, Nonbank (Credit Cards & Credit) (Japanese

only)

27, HR Service Industry (Japanese only)

Japan Industry Outlook / 38

2012 No.1

Contact: Industry Research Division

Mizuho Corporate Bank, Ltd. [email protected]

http://www.mizuhocbk.com/fin_info/industry/pdf/1038_01.pdf


















mailto:[email protected]

mailto:[email protected]

FY2012 Japan Industry Outlook (Non-Ferrous Metals)

Mizuho Corporate Bank Industry Research Division

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%

I. INDUSTRY TRENDS

1. Domestic Demand for Refined Copper Will Stay Flat in FY2012, While Production Will Recover due to a Drop in Imports

In FY2011, domestic demand for refined copper is estimated to fall 3.1% year-on-year to 1.074 million tons, primarily because of a drop in demand for rolled copper. Exports are likely to slump 13.6% year-on-year to 411,000 tons, as Japanese smelters, in the face of operational troubles following the earthquake placed the highest priority on the stable supply to domestic customers. Imports, on the other hand, are estimated to expand significantly over the preceding year to 124,000 tons as a result of emergency import measures introduced over April and May 2011 in the wake of the tight supply and demand situation after the earthquake. Production of refined copper is set to decline 10.8% year-on-year to 1.337 million tons due to constraints on the

Production is estimated to sag more sharply than production in FY2011 under the earthquake’s impact.

NON-FERROUS METALS

Summary

■ In FY2012, domestic demand for refined copper is expected to inch up 0.7% year-on-year to 1.082 million tons, with demand for electric cable and rolled copper seen moving largely sideways. As operations at Japanese smelters move back on track, exports are likely to rise 8.3% year-on-year to 445,000 tons. Imports, on the other hand, are expected to drop to around the FY2010 level due to the disappearance of purchases made under emergency import measures following the Great East Japan Earthquake. Production is forecast to recover to 1.445 million tons, a year-on-year increase of 8.1% on the return to normal smelting operations.

■ Base metal prices in FY2010 are likely to fall below the FY2011 levels overall amid the deterioration of fundamentals, particularly on the demand side, due to the stagnant global economy.

■ A significant recovery in corporate earnings is seen as quite unlikely in FY2012. The tough earnings environment in smelting operations is set to remain intact, while earnings in mining operations are expected to deteriorate due to the stagnant metals markets. Earnings in such diversification sectors as electronic materials and automobile parts are likely to recover modestly, however.

■ As for the direction of strategies for major businesses of Japanese smelters to be viable operations over the medium term, this paper looks at copper smelting, zinc smelting, nickel smelting, rolled copper, electronic materials/automobile parts and recycling.



2

supply in the first half of the year ascribable to the earthquake, including the suspension of operations at the Onahama smeltery.

In FY2012, domestic demand for refined copper is expected to rise only 0.7% year-on-year to 1.082 million tons, as demand for electric cable and rolled copper, the two main applications for refined copper, is likely to level off. Exports are forecast to grow 8.3% year-on-year to 445,000 tons, thanks to a recovery of operations at Japanese smelters. Imports, on the other hand, are expected to plummet 63.7% year-on-year to just 45,000 tons, or around the FY2010 level, due to the disappearance of purchases made under emergency import measures following the earthquake. Production is forecast to recover, rising 8.1% year-on-year to 1.445 million tons on the return to normal smelting operations (see Fig. 3-1).

2. Demand for Electric Cable Forecast to Move Sideways Year-on Year in FY2012

In FY2011, demand for electric cable is estimated to edge down 0.8% year-on-year to 677,000 tons. By application, demand related to construction and energy sales, the biggest markets, is expected to increase on the back of demand linked to the post-quake reconstruction efforts. Demand related to the electronics and automobile sectors is forecast to decline due to the earthquake

In FY2011, demand is likely to move sideways year-on-year.

Production will recover in FY2012, though domestic demand will stay flat.

[Fig. 3-1] Trends of Domestic Demand, Imports, Exports and Output of Refined Copper

Source: Compiled by MHCB Industry Research Division based on the “Monthly Report on Iron & Steel, Non-Ferrous Metal, and Fabricated Metal Statistics.” Note: The figures for FY2011 and FY2012 are based on MHCB Industry Research Division forecasts.

[Actual]Brief FY10 FY11 FY12 FY11/1H FY11/2H FY12/1H FY12/2H(Unit) (Actual) (Estimate) (Forecast) (Actual) (Estimate) (Forecast) (Forecast)

Domesticdemand

Refined copper(Thousand tons) 1,109 1,074 1,082 535 539 540 542

Exports Refined copper(Thousand tons) 476 411 445 196 215 225 220

Imports Refined copper(Thousand tons) 49 124 45 105 19 25 20

Output Refined copper(Thousand tons) 1,500 1,337 1,445 633 704 720 725

[Rate of Increase/Decrease] (YOY) (YOY)Brief FY10 FY11 FY12 FY11/1H FY11/2H FY12/1H FY12/2H(Unit) (Actual) (Estimate) (Forecast) (Actual) (Estimate) (Forecast) (Forecast)

Domesticdemand

Refined copper(%) + 10.6% - 3.1% + 0.7% - 4.7% - 1.5% + 0.9% + 0.6%

Exports Refined copper(%) - 19.5% - 13.6% + 8.3% - 26.1% + 2.1% + 14.8% + 2.3%

Imports Refined copper(%) + 22.4% + 152.5% - 63.7% + 269.7% - 8.2% - 76.2% + 5.3%

Output Refined copper(%) + 0.6% - 10.8% + 8.1% - 19.0% - 1.9% + 13.7% + 3.0%



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damage to customers as well as the fallout of the supply chain disruptions caused by flooding in Thailand. Demand from the electric power sector is likely to slow down sharply due to restrained investment in the replacement of facilities in the wake of deteriorating earnings of electric power companies. Exports are also likely to see a substantial drop amid the global economic stagnation and declining price competitiveness against the backdrop of the yen’s unabated appreciation.

Demand for electric cable is forecast to more or less mark time, inching up only 0.2% year-on-year to 679,000 tons. Demand related to construction and energy sales is expected to stay flat, with sustained reconstruction-related demand likely to be offset by the disappearance of demand linked to recovery efforts immediately after the earthquake. Demand from automakers is seen to show at least a modest increase as they recover from the effects of the earthquake and flooding in Thailand. But demand from the electronics sector is forecast to remain weak as users are experiencing a deterioration of their export markets due primarily to the yen’s appreciation. Demand from the electric power sector is expected to stay largely flat, as electric power companies are estimated to continue with investment restraints. The environment for exports is also forecast to remain severe amid the yen’s unabated strength (see Fig. 3-2).

3. Demand for Rolled Copper Is Seen to Move Sideways Year-on-Year in FY2012

In FY2011, demand for rolled copper is estimated to drop 4.6% year-on-year to 819,000 tons due to stagnant demand related to automobiles and electronics, including exports. By product type, demand for copper strips is expected to weaken, as exports are likely to take a beating from the yen’s appreciation and the stagnant world economy, on top of the fallout from production cutbacks by automakers and electronics manufacturers following the earthquake and flooding in Thailand. Demand for brass rods is expected to remain slow in the key gas equipment and faucet fittings sectors. On the other hand, demand for copper pipes is expected to increase on the back of replacement demand for advanced air-conditioners being spurred by the acute need for electricity-saving efforts during summer.

Demand for rolled copper is expected to rise 0.6% year-on-year to 824,000 tons. While demand for copper strips is seen to recover from the effects of the earthquake, the situation for exports is likely to remain severe. Demand for brass rods should exhibit a modest recovery in the gas equipment sector on the strength of reconstruction-related demand particularly in the housing sector. Demand for copper pipes is estimated to turn down, discounting the disappearance of replacement demand related to electricity saving in the all-important air-conditioner market (see Figure 3-3).

In FY2011, demand is estimated to drop 4.6% year-on-year.

The picture is not much different for FY2012.

Demand likely to stay flat in FY2012.



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4. Trends in Major Base Metal Prices

Base metal prices followed a downtrend in the second half of 2011, with copper now at the $7,600 level, zinc at $1,900, lead at $2,000 and nickel at $18,200 (average prices as of December 2011). Compared with the average prices in January 2011, copper, zinc and lead have all seen price declines of around 20%, while nickel has fallen by a larger margin of around 30%. These price movements apparently reflect an outflow of investment funds from the commodities markets after taking profits as well as weakening demand amid the deterioration of the euro-zone economies.

Base metal prices in 2012 are expected to suffer from the deterioration of fundamentals particularly in terms of demand, affected by the lingering stagnation of the global economy triggered by the fiscal crisis in Europe. Overall, annual average prices are likely to fall below the 2011 levels.

Copper prices are expected to recover only moderately from the prevailing price levels. While new large-scale mines are scheduled to go on stream from the second half of 2012, supply constraints will likely remain intact because of delays in the launching of these new projects as well as the deteriorating quality of copper extracted from aging mines.

[Fig. 3-3] Trends of Rolled Copper Products

Metal prices trended down in the second half of 2011.

Average prices in 2012 are forecast to fall below the 2011 prices.

Source: Compiled by MHCB Industry Research Division based on materials published by the Japanese Copper and Brass Association. Note: The figures for FY2011 and FY2012 are based on MHCB Industry Research Division forecasts.

[Fig. 3-2] Trends of Electric Copper Wire Shipments by Sector

Source: Compiled by MHCB Industry Research Division based on materials published by the Japanese Electric Wire & Cable Makers’ Association. Note: The figures for FY2011 and FY2012 are based on MHCB Industry Research Division forecasts.

1

0

200

400

600

800

1,000

1,200

95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 1011e12e

Exports

Others

Telecommunications

Power

Automobiles

Electrical Machinery

Construction/powersales

（Thousand tons）

（FY）

1,055

　　759

663

856

ar

683 679677

0

200

400

600

800

1,000

1,200

1,400

95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11e12e

Exports

Others

Othermanufacturing

Construction

Transportequipment

Generalmachinery

Metal products

Electricalmachinery

（Thousand tons）

（FY）

1,198

813753

999

858819 824



5

Zinc inventory levels are staying high, affected by the increased core production capacity in China. With prevailing price levels offering only limited incentives for production cuts, zinc prices have little room to go higher relative to other metals. Lead is also seen to have only limited room for further price advances, as the supply-demand conditions are far from tight.

Nickel is expected to see a further worsening in the supply and demand balance due to the launch of a number of new large-scale projects and increased production at existing mines, on top of slow demand in the key stainless steel market (see Fig. 3-4).

Source: Compiled by MHCB Industry Research Division based on Japan Metal News reports.

353

186

2,019

2,148

0

200

400

600

800

1,000

1,200

1,400

90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 1011/12 3 4 5 6 7 8 9 10 11 12

0

500

1,000

1,500

2,000

2,500

3,000

在庫(左目盛)

価格(右目盛)

（＄/トン）（千トン）【鉛】

90

13718,154

21,809

0

60

120

180

240

300

360

420

90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 1011/12 3 4 5 6 7 8 9 10 11 12

（千トン）

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000（＄/トン）

在庫(左目盛)

価格(右目盛)

【ニッケル】

[Fig. 3-4] Trends of LME Prices and Inventory Levels for Copper, Lead, Zinc and Nickel

（Cy）

（Cy）

（Cy）

371444

7,568

7,535

0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

2,000

90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 1011/12 3 4 5 6 7 8 9 10 11 12

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

10,000

在庫(左目盛)

価格(右目盛)

（＄/トン）（千トン）【銅】

822

598

1,916

2,161

0

300

600

900

1,200

1,500

1,800

2,100

2,400

2,700

3,000

90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 1011/12 3 4 5 6 7 8 9 10 11 12

0

500

1,000

1,500

2,000

2,500

3,000

3,500

在庫(左目盛)

価格(右目盛)

（＄/トン）（千トン）【亜鉛】

（Cy）

年次← ｜ →月次年次← ｜ →月次

年次← ｜ →月次年次← ｜ →月次

Copper

Inventory (left scale)

(K tons)

Price (right scale)

(USD/ton)

Monthly Annual

(K tons)

(K tons) (K tons)

Zinc

Lead Nickel

(USD/ton)

(USD/ton)(USD/ton)

Annual Monthly

Monthly

Monthly

Annual

AnnualInventory (left scale) Inventory (left scale)

Inventory (left scale)

Price (right scale)

Price (right scale)

Price (right scale)



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II. CORPORATE EARNINGS

1. Prospects for Earnings Recovery in FY2012 Seen Limited

In FY2011, Japan’s five leading non-ferrous metal manufacturers are expected to chalk up lower profits on flat revenue, with operating profits estimated at around 200 billion yen on revenue of around 4 trillion yen. Lower profits are expected to stem from (1) poor results of smelting operations due to the yen’s appreciation and the earthquake; (2) poor performance of electronic materials; and (3) inventory valuation losses as a result of declines in metal prices.

A significant recovery in corporate earnings in FY2012 is seen as unlikely, with revenue estimated at around 3.9 trillion yen and operating profits at around 210 billion yen. In smelting operations, the recovery from the earthquake and the settlements of price negotiations on copper ore purchases for FY2012 shipments in favor of smelters are the good news. In view of the impact of the stronger yen (smelting margins are quoted in dollars), however, the earnings environment will remain tough (see Fig. 3-5). In mining operations, the sluggishness in prices of nickel and other metals is a negative factor for smelters’ earnings. In diversification businesses, electronic materials and automobile-related fields are expected to see a recovery in earnings, and the robust recycling business is also likely to make a contribution to their earnings (see Fig. 3-6).

FY2011 is expected to see lower profits on flat revenue.

A significant recovery in earnings is seen as unlikely in FY2012.

[Fig. 3-5] Trends of Copper Smelting Margins (two-year moving average)

Source: Compiled by MHCB Industry Research Division based on company press releases and materials published by the Japan Oil, Gas and Metals National Corporation (JOGMEC). Note 1: TC/RC refers to Treatment Charges (TC) and Refining Charges (RC), inclusive of smelters’ margins. Note 2: The Price Participation (PP) mechanism allows for gains and losses on copper price fluctuations to be distributed between mining and smelting companies according to a fixed rate. Note 3: Copper smelting margins are determined using the brick method (a two-year moving average comprising previous-year and current-year margins).

(￠/Lb)

(FY) -5

0

5

10

15

20

25

30

02 03 04 05 06 07 08 09 10 11 12e

PP

TC/RC



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III. TOPICS: Study on Businesses Promising over the Medium Term ～ The Non-Ferrous Metal Smelting Industry ～

Regarding major business operations of Japanese non-ferrous metal smelters, the direction of strategies for some of these operations to be viable over the medium term is studied below.

In copper smelting operations, domestic and overseas smelters in which major Japanese non-ferrous metal manufacturers have invested are large in operational scale and have strong cost competitiveness. In recent years, however, stagnant smelting margins and the stronger yen have been exposing them to a severe earnings environment. While new large-scale mines are scheduled to be developed in 2013 onward, the deteriorating quality of copper extracted from existing mines and other factors are expected to keep the supply and demand balance tight for copper concentrates for some time to come. Therefore, concurrently with continued efforts to increase investment in upstream operations, initiatives to reduce transportation costs by the application of the wet-type smelting technique (Note 1) at mines would constitute an effective business strategy in this sector.

In zinc smelting operations, smelters have been providing each blast-furnace steelmaker with refined zinc of different grades for the key galvanized steel sheet market in a bid to enhance their responsiveness to users for the differentiation from imported products. On the other hand, there are a large number of medium-scale smelters in Japan by global standards, and surging coke prices have placed particularly dry-type smelters (Note 2) in a tough earnings environment. While smelters have to continue to make good the stable supply to users, they are also under pressure to strengthen cost competitiveness by consolidating their domestic production structures in accordance with the shrinkage in domestic demand.

[Fig. 3-6] Earnings Performance of Japan’s 5 Major Non-Ferrous Metal Manufacturers

Source: Compiled by MHCB Industry Research Division based on company financial statements. Note 1: The figures for FY2011 and FY2012 are based on MHCB Industry Research Division forecasts. Note 2: Japan’s five leading manufacturers are JX HD’s metals business, Mitsui Mining & Smelting co., Ltd., Mitsubishi Materials Corporation, Sumitomo Metal Mining Co., Ltd. and Dowa Holdings Co., Ltd.

Copper smelting: Increased investment in upstream operations and the application of the wet-type smelting technique at mines

Zinc smelting: Differentiation from imports and consolidation of domestic production structures

[Actual] [Rate of Increase/Decrease] （YOY）

No. of companies FY10 FY11 FY12 Brief FY10 FY11 FY12

(Unit) （Actual）（Estimate）（Forecast）（Unit）（Actual）（Estimate）（Forecast）

Sales 5(JPY billion) 3,964.9 4,039.8 3,934.7

Sales 5（％） - 88.1% + 1.9% - 2.6%

Operatingprofit

5(JPY billion) 227.2 201.0 211.2

Operatingprofit

5（％） - 83.5% - 11.5% + 5.1%



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In nickel smelting operations, the launch of new overseas projects that apply the smelting technology for nickel sulfide ores is in the offing. After Indonesia, a major ore producer, banned ore exports, smelters are under pressure to secure the stable procurement of raw materials. Stepped-up advances into upstream operations and the establishment of smelting technologies should provide the sources of competitiveness.

In the rolled copper business, in the smelters’ key area of plates and strips, they have secured a measure of profitability by carefully responding to users’ needs in alloy development and some other areas. Amid the accelerating shift of production overseas by users, smelters are likely to be required to revamp their structures for supply to overseas markets, also with a view to the business partnership among domestic plate and strip makers.

In downstream operations such as electronic materials and automobile parts, smelters should continue to strengthen their responsiveness to user needs in the markets monopolized by Japanese manufacturers of industrial materials with technological advantages while at the same time pursuing niche markets. On the other hand, smelters will come under stronger than ever pressure to enhance cost competitiveness with a view to a review of their domestic production structures as the needs of users are shifting from high value-added to lower costs in the largest areas of the market.

The recycling business is an area where smelters can leverage their technological advantages for the effective recovery of multiple metals cultivated in their smelting operations. In Japan, which has scarce mineral resources, high expectations will be placed on stepped-up efforts toward the recycling of resources going forward. Smelters will likely be called upon to take initiatives, in tandem with users, in the stable and low-cost recovery of metals collected.

Note 1: Wet-type smelting … The technique to obtain metals by melting ores with diluted sulfuric acid

Note 2: Dry-type smelting … The technique to burn and melt concentrates

Yuki Terasawa

[email protected]

Primary Materials Team

Industry Research Division

Mizuho Corporate Bank, Ltd.

Nickel smelting: Stepped-up advances into upstream operations and the establishment of smelting technologies

Rolled copper: Revamping of the structure to supply overseas markets

Downstream business: Pursuit of niche markets or enhanced cost competitiveness

Recycling business: Stronger initiatives in tandem with users