Posted on 29 Dec 2023
Japan's new law limiting overtime is likely to reduce steel demand in the construction sector in 2024, which has already been facing severe labour shortages.
The Japanese government has decided to impose an upper limit of 360 overtime working hours/yr in the sector from April 2024. The construction sector accounts for more than 40pc of domestic steel demand.
The sector is known for sub-optimal working conditions, with its annual overtime well above the national average, including frequent weekend hours. This has caused younger individuals seeking work to avoid employment in the sector. This has resulted in an ageing workforce as well as continuing labour shortages at construction sites for many years, according to a monthly report in November by the country's ministry of land, infrastructure, transport and tourism (MLIT).
The new law is likely to lengthen construction times, reducing the number of projects and weigh on steel demand.
Major domestic construction firms have already announced changes to their construction periods to comply with the new law. This includes an eight-day shutdown of construction sites every four weeks, almost double the present duration.
Competing firms have reduced orders from clients, major construction firm Obayashi said on 7 November. "The trend will continue for a while," Obayashi added, without further details.
This trend is likely to impact already-weak steel demand from the construction sector. Demand has been weak because of rising raw material prices since the Russia-Ukraine war began, as well as the aforementioned labour shortages.
Booked orders for ordinary and special steel products used in construction have recorded negative growth on the year throughout 2023, according to data from industry group the Japan Iron and Steel Federation (JISF). Booked orders for ordinary products fell by 2.7pc on the year to 787,023t in October, the latest month for which data is available, despite traditionally high steel demand during autumn.
The decline in orders has prompted the MLIT to lower its forecast for demand for ordinary steel products in the construction sector to 17mn t for the April 2023-March 2024 fiscal year, down by 2.7pc on the year.
This trend is contrary to steel demand for use in automobiles, where the average growth rate has been 10pc on the year during January-October this year, on the back of a recovery in automobile production after the Covid-19 pandemic.
Longer construction periods are also likely to increase operational costs, including insurance costs for workers and other day-to-day expenses.
This will put additional pressure on construction companies which have been facing rising material costs including for deformed steel bar and H-shaped steel. Prices for the two materials have increased by 74pc and by 66pc respectively since early 2021, data from industry group Japan Federation of Construction Contractors show.
Decreasing steel demand for construction will reduce steel production by electric arc furnace (EAF), which in turn will also impact scrap demand. Japan usually manufactures a significant proportion of steel products for the construction and automobile sectors using the EAF and basic oxygen furnace (BOF) methods, respectively.
JISF, in its latest projections for the April 2024-March 2025 fiscal year, did not forecast actual steel consumption but predicted that the country's steel demand for the construction sector would decline partly because of continuous labour shortages. This is contrary to the movement in the automobile sector, JISF said, where high demand would likely persist partly because of unfilled orders.
Source:Argus Media
