Japan's crude steel output in this quarter will decline to 25.3 million metric tons, down 7.5%, or 2.04 million tons, from an estimated 27.34 million tons in the preceding quarter, according to a recent forecast by the Ministry of Economy, Trade and Industry. (METI was known until earlier this month as the Ministry of International Trade and Industry or MITI.) The ministry said Japanese steelmakers are cutting output because other Asian economies have built up inventories of steel.

The quarterly cutback will be the biggest in the past 15 years, according to Satoru Kubota, a spokesman for the ministry. And it will be the first time in seven quarters that Japanese steel output has fallen below the output of the year-earlier quarter. Year on year, steel output will dip 0.4%, from 25.4 million tons.

"Exports are expected to decline sharply, reflecting a deterioration of export market circumstances" in Asia, says Mr Kubota at METI.

Kaoru Ando, a spokesman for Kawasaki Steel Corp., agrees. "In the long term, the Asian market is still growing, but the strength that was seen until the middle of last year is nowhere," he said.

The plight of Japan's steelmakers points to a fundamental dilemma for all sorts of Japanese manufacturers: Because the Japanese economy remains weak, they are dependent on the US and Asia for growth. Now that the US economy is slowing and Asia looks set to follow, the steelmakers' plight may give a taste of what lies in store for Japanese machinery and electronics makers.

At the same time demand was easing, exports to the US also fell because US steelmakers and labour unions filed antidumping charges against importers from Japan, Russia and Brazil. Washington also started imposing penalty taxes on these imports beginning in February 1999.

Demand for steel in Asia lost steam beginning in the middle of last year, because Asian manufacturers use Japanese steel to make many of the products they export to the US, so steel prices have declined sharply since September 2000. For example, hot coil, a kind of sheet steel commonly used in household electric appliances and automobiles, was fetching more than S300 a metric ton until August, according to industry officials who said that since September, it has fallen to around $200 a ton.

Industry officials also are blaming their projected production cutbacks on moves in South Korea and Taiwan to restrain imports from Japan, charging that Japanese steelmakers are dumping their products.

As the deterioration in the Asian market intensified, Iwao Okamoto, the METI director general in charge of regulating the steel industry, urged Japan's major steelmakers to engage in "orderly" exports at a meeting with industry officials late last month, saying that the price collapse was due to aggressive exports by Japanese steelmakers. In METI's view, orderly exports return a reasonable profit without the kind of excessive price competition that disrupts markets.

Japan's steel exports to Asian countries totalled 16.79 million tons from January to November last year, up 5.7% from a year earlier. Exports to the region accounted for 63% of Japan's global steel exports, according to the Japan Iron & Steel Exporters Association.

That growth in exports to Asia means that the industry will be see annual output top 100 million metric tons for the year that ends this coming March 31. It's the first time in three fiscal years the industry has topped that level.

Still, the Japan Iron and Steel Federation says Japan's crude-steel output in the year that begins April 1 is expected to decline to 99 million metric tons from 106 million metric tons estimated for the current fiscal year, given the decline in the demand for steel in the Asian countries.