Japan March iron & steel demand push machine tool orders above expectations

Japan March machine tool orders exceeded analysts’ expectations, rebounding after February’s sharp month-on-month drop, which was the first contraction since November. A proxy for capital expenditure, machine tool orders, excluding ships and utilities, jumped 5.5 pct on month in March from 9.2 pct fall in February.

The machine orders were consistent with Japan’s March quarter GDP, which came in yesterday at a better-than-expected 1.7 ct annualized pace in the first three months of this year.

Economists at Barclays had expected core machinery orders to rise 6.4 pct q/q  based on the Cabinet Office’s survey for major machinery makers. Official capex data for the December quarter showed subdued investment during the final three months of the year.

"The CAPEX will continue increasing gradually," Barclays said in a research note.

The improvement principally reflected a bounce back in orders placed by manufacturers, up almost 20 pct m/m. However, in the latest month, orders from manufacturers were flattered by likely one-off surges in orders placed by a couple of subsectors like non-ferrous metals and ship-building manufacturers.

Similarly, machine tools witnessed a surge in orders placed by iron and steel manufacturers after an explosion at a steel plant. Excluding these apparent one-offs, orders placed by manufacturers were flat in the first quarter on an average.

Meanwhile, orders placed by non-manufacturers fell for the first month (down 6.9 pct m/m). Overall, total orders increased 6.7 pct q/q, the firmest quarterly increase since Q2 2013, but by just 1.1 pct q/q when the aforementioned apparent one-offs are excluded.

However, the survey suggests that total orders are anticipated to fall in Q2 by 3½ pct q/q, suggesting that firms might well continue to scale back their capital spending in the first half of FY16, Bloomberg reported.