TOKYO, Jan 26 (Reuters) - Japan's crude steel output will drop for a second straight year in 2012 as a stronger yen hurts exports and domestic manufacturing remains weak despite a pickup in reconstruction demand, an industry body said on Wednesday.
Steelmakers across Asia have been curbing production as a shaky global economy dents consumption with top producer China forecast to see slower growth in output this year.
Crude steel output in Japan, the world's No. 2 producer, will drop by around 2-3 million tonnes from 107.6 million tonnes in 2011, said Eiji Hayashida, chairman of the Japan Iron and Steel Federation. That would follow a 1.8 percent decline in output last year.
"A strong recovery in exports is unlikely to happen at the current yen rate, while domestic demand will dip slightly," Hayashida, who is also head of the world's No. 5 steelmaker JFE Holdings, told a news conference.
The yen's rise to a record high of 75.3 yen against the U.S. dollar in October has hit Japanese exporters, with shipments of passenger cars falling more than 10 percent in April-November.
The Japanese currency hit a one-month low around 78 versus the greenback on Wednesday after government data showed the country's first annual trade deficit since 1980.
China, whose steel output is six times bigger than Japan's, is likely to see production growing around 6 percent to 728 million tonnes in 2012, slower than the 8.9 percent pace in 2011, as Beijing keeps a tight grip on its property sector, a Reuters poll last month showed.
Hayashida said he expects Japan's carbon steel exports to drop to around 25 million tonnes in the 2012/13 financial year from an estimated 27-30 million tonnes in 2011/12 as the firmer yen dents the competitive edge of Japanese products.
Reconstruction of river banks and other engineering projects after last year's massive March 11 earthquake will boost steel demand, but he said the increase will only be limited to 500,000-600,000 tonnes.
Imports of cheaper-priced steel will not exceed the current 5-6 million tonnes level in the next fiscal year that starts in April, because the usage is limited, Hayashida said. The current import volume represents about 10 percent of domestic demand.
"It is unlikely that imports will rise further because of specification issues," he said.
Hayashida also said that Tokyo Electric Power Co's plan to raise rates for corporate customers would be difficult for steelmakers to cope with, particularly producers of construction steel who are now operating mostly at night and on weekends to take advantage of lower electricity rates.
"The rate rises could push many of those into the red. We should be aware that high energy costs will deal a substantial blow to Japanese industries.
"Japan will find it difficult to formulate an energy policy that does not include nuclear power," he said.
The utility, known as Tepco, is struggling to recover in the aftermath of last year's disaster at its Fukushima Daiichi nuclear plant.
Only four of Japan's 54 nuclear power reactors are running due to public safety fears following the world's worst nuclear disaster in 25 years since Chernobyl.