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Last Updated: Thursday, 25 November, 2004, 15:43 GMT
Steel shortage hits Nissan plants
Nissan factory (September 2004)
Other carmakers are hoping to avoid a steel shortage
Nissan is to stop production at some of its domestic car plants for five days due to a steel shortage.

Japan's second-biggest car maker will suspend operations at three of its four domestic plants on 29 and 30 November and from 6 to 8 December.

It will result in the lost production of about 25,000 vehicles, due to be made up early next year.

Steel prices have been rising due to tight raw-material supplies and a surge in demand from the Chinese economy.

Shares in Nissan closed down 0.37% at 1,082 yen on Thursday, while Nippon Steel shares were up 2.49% to 247 yen and shares in fellow steelmaker JFE Holdings added 4.18% to 2,865 yen.

Nissan said the problem has arisen since the roll-out in early September of a series of new models, and that the production backlog would be overcome by running the closed factories during January holidays.

It is introducing six new lines in Japan between this autumn and January, after producing no new models for a year.

However, Yuichiro Nakajima, a managing partner of Crimson Phoenix Bank in Tokyo, told the BBC's World Business Report: "Nissan is in a particularly tight spot because they deliberately chose to cut the number of suppliers throughout their manufacturing process."

Unforeseen demand

Demand for the new models, including the Tiida compact car and Fuga luxury sedan, has been high with both outstripping the company's projections.

"We didn't foresee this much demand," said a Nissan spokesman.

The company hopes to sell 3.6 million vehicles in the 12 months to September 2005, or 1 million more than it sold during 2001.

Some analysts believe tight steel around the world means there could be problems for other Japanese car firms.

The world's second-largest auto maker, Toyota, said steel supply was tight but that it was trying to obtain and use steel more efficiently rather than close plants.

"Japanese steel makers give top priority to demand from the auto industry," said Shinko Securities analyst Nobuyuki Tsuji.

"Steel supply must be tight if auto makers are short of it, and I think we will see the same problem at other car makers and industries."

Nissan sought more steel from its suppliers - Nippon Steel and JFE Steel.

However the pair have been operating at full capacity to meet booming demand at home and in China, and were unable to comply.

Nippon Steel also supplies to other auto makers such as Toyota and Honda.

JFE Steel hopes to boost annual output capacity by one-tenth next year by retooling its existing facilities in Japan.

Yuichiro Nakajima, of Toyko's Crimson Phoenix Bank
"Nissan is in a particularly tight spot."

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