Throughout 2004, Japanese mills propped up domestic prices by restrictive supply measures, increasing cold rolled output by a mere 3.4 percent while apparent consumption rose by 15.1 percent, year-on-year in the eleven months to November. Although the objective of maintaining price stability was achieved, the main beneficiaries proved to be South Korean producers who are estimated to have exported a staggering 100,000 tonnes of cold rolled material to Japan in 2004. Adopting a more aggressive sales stance in January 2005, the large domestic suppliers announced a reduction in the extra charges applied to thin gauge deliveries. Their expectation was that the competitiveness of imports will be eroded if the maximum extra charge for 0.5mm sheet and coil is set at 450 dollars/t, especially given that Japanese demand for medium and heavy gauge material currently outstrips that for the thinner products which South Korean mills are keen to sell. This strategy might prove successful in limiting import volumes even though in recent months foreign products have been very assertive in attempting to carve out a permanent share of the Japanese market. However, the mere reduction of thickness extras will not be sufficient to restore what appears to be a systemic market failure in the Asian region. Namely, the fact that the underlying demand for stainless steel is strong and likely to remain so, but not at the prices currently sought by local producers.
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