JAPAN’S GDP grew 1% in the first quarter of 2012, according to estimates from the country’s Cabinet Office.

That growth, running at an impressive annualised rate of 4.1%, was due to the government-led rebuilding efforts and consumer demand.

Following the Fukushima earthquake and tsunami in March 2011, the country has been making efforts to reconstruct areas hit by the disaster. For the shipping industry, this translates into raw materials, notably iron ore for steel production.

When the quake hit last year, it came during the weak first-quarter ore season, when cyclone activity in western Australia and rains in Brazil prevented the world’s two largest producers supplying the global market.

In turn, capesize bulk carriers saw a severe drop in demand, as record volumes of newbuilding deliveries continued to hit the water from shipyards.

Fast-forward a year and what does the picture look like for Japan’s economic growth, imports and the subsequent impact on the shipping markets?

Although they dropped, Japan’s iron-ore imports only fell 1% between the last three months of 2011 and the first quarter of this year, declining from 31.8m tonnes to 31.5m tonnes, according to its Customs figures.

Despite being down 160,000 tonnes on volumes imported in the first quarter of 2011, the January to March figures represent 4% growth on second-quarter levels seen last year, when the aftermath of the earthquake saw imports drop to 29.7m tonnes as steel plants slowed production.

However, looking back at Japan’s quarterly iron-ore import figures shows that over the course of the year, its imports of iron ore climb, something that was illustrated in 2010. That year, the first quarter saw Japan import 32.4m tonnes of iron ore and concentrate. The figure climbed to 34.6m tonnes by the fourth quarter.

While China is the biggest swing factor in the global iron ore and capesize markets, acting as an on-off switch for spot activity, an underlying increase in shipments to Japan would support a sector struggling with overcapacity.

The question is whether a second and third quarter uptick will materialise.

Three important negative factors to consider include the concern that Japanese steel stocks are “full”, according to Capital Economics Japan economist David Rea.

“Steel production in Japan is at its highest level since before the earthquake and has been recovering rapidly since the beginning of the year,” he said.

In fact, “the level of [Japan’s] steel inventories is the highest it has been since 2001... [and] stocks are full”.

This is in turn is understood to be dampening Japan’s iron-ore demand.

Secondly, a 12% increase in Japan’s energy prices is discouraging energy-intensive steel production, in turn depressing Japanese demand for iron ore.

“The cost of energy imports for businesses in Japan has increased by about 12% compared to last year,” Mr Rea said.

This is set to rise further over the northern hemisphere’s summer during the decommissioning of Japan’s nuclear power plants.

Thirdly, a weakening yen in the first quarter of 2012 has reduced Japanese demand for iron ore, a commodity that was cheaper when the yen was stronger.

According to The Economist, Japan’s currency has appreciated by 45% against the dollar in the past four years.

However, other positive signs for higher Japanese iron-ore demand over the rest of 2012 include the central role of rebuilding during a stronger-than-expected Japanese recovery, and explicit industry forecasts on Japanese iron ore imports for 2012.

Earlier this year, the Organisation of Economic Co-operation and Development forecast that “public and private reconstruction spending will drive... [Japan’s] recovery through mid-2012”, suggesting that iron ore demand could grow alongside further rebuilding during the second and third quarters of this year.

There are also signs that Japan’s economic recovery is finally picking up pace as first-quarter GDP growth outpaced expectations and in March the Nikkei returned to its pre-tsunami position for the first time.

A strong Japanese recovery could boost domestic demand for raw materials, aided by a relatively strong yen.

Analysts are also expecting greater imports to Japan, with Clarksons’ annual forecast showing a gain of 2% in volumes for 2012, predicting 131.1m tonnes for this year compared to 128.4m tonnes in 2011.

Using this forecast, Japan’s iron-ore imports over 2012 will be weaker than 2010’s figure of 134.3m tonnes though, suggesting room for growth.

All considered, there is a counter-intuitive conclusion, one that is important for anyone in the dry bulk sector. Japanese reconstruction in 2012 will occur alongside factors that could dampen Japan’s iron-ore demand.

However, if GDP growth grows throughout the year this will be further good news for the capesize market.