Reuters reported that Japanese steelmakers' exports of flat steel products are expected to fall by 10% to 20% in July to September 2011 from the previous quarter due to a surge in the yen and sluggish sales to South Korean firms, their biggest customers.

Japanese steelmakers, the world's largest exporters in 2010, saw their exports of flat steel products like hot and cold rolled coils and galvanized sheets fall 11% to 4.3 million tonnes in April to June 2011 period.

Low priced exports from China dragged down the market and the yen's steep rise against the dollar and other major Asian currencies made their products less competitive. Exports were also hit by a fall in global car production after Japan's March earthquake disrupted the supply of parts.

An official at a Japanese trading company, who declined to be identified, said that "A 10% to 20% fall in exports of steel sheets is very likely this quarter. They've found it very hard to strike deals because of a wide price differential."

Nippon Steel Corporation and JFE Steel Corporation and South Korean customers are still negotiating export prices of hot coils for July to September 2011 period.

Traders said that South Korean firms want prices below their April to June contract price of USD 800 per tonne on cost and freight basis, while Japanese firms are determined to raise prices.

According to the Japan Iron & Steel Federation, Japan's exports of hot coils to South Korea plummeted 50% in June 2011 from a year earlier to 166,000 tonnes and in the three months to June 2011, they fell 33 percent to 671,500 tonnes. The trading company official said they will sag further in July. Analysts also estimate annual production capacity by South Korean mills has expanded by 5 million tonnes in the past two to three years.

An official at another trading company said that "On top of the strong yen, Hyundai Steel's production boost and inventory adjustments at downstream producers has had an impact."

But there are some bright signs, including recent announcements by Baosteel and several Chinese mills on price hikes for September 2011 bookings.

Traders said that Chinese steel makers' offer price on hot rolled coils have inched up to USD 730 per tonne on CF basis. China's crude steel output in July inched down 1.1% or 632,000 tonnes from June to 59.3 million tonnes, although it was still 15.5% more than a year earlier.

Many industry experts expect a jump in Japan's car output later this year will keep Japanese steelmakers busy and operating at full capacity in the October to March period as they need to boost supply to domestic manufacturers. Even so, trading companies expect there will be leeway for exports and the companies will step up exports if prices are attractive.

Japan's steel industry estimates Toyota Motor Corporation and other Japanese carmakers will be producing a combined 5.3 million cars in October to March to make up for lost sales after the earthquake. That is 26% more than the same period a year ago or a 40% jump from April to September.