Japan's top steelmakers reported higher first-half earnings this week, but slowing demand and bloated stockpiles could push them to sell more overseas, adding to a global glut that has dragged Asian prices to five-year lows. Prime Minister Shinzo Abe's sales tax hike in April has hit economic growth and consumer spending harder than expected, hurting sales in two sectors important for steelmakers, automotive and construction. In a stark admission of the tax hike's harsh impact, the Bank of Japan surprised global financial markets on Friday by expanding its massive stimulus spending. Doubts, however, remained on how effective the move will be.   Nippon Steel & Sumitomo Metal and JFE Holdings , Japan's No.1 and No.2 steelmakers, respectively, said earlier this week they expect a pickup in building and vehicle sales, but analysts were not so sure the domestic market will strengthen enough to cut inventories which stood at a 13-year high at the end of September. And steelmakers are slowly turning to overseas markets. Japan's exports of steel products rose for the first time in 13 months in September to 3.74 million tonnes, competing with a flood of Chinese steel. "The biggest worry is the output adjustment by automakers," said Keiju Kurosaka, senior analyst at Mitsubishi UFJ Morgan Stanley. "There is a risk that spot product prices will fall into a downward spiral." Nippon Steel and JFE plan to boost crude steel output to 46.1 million tonnes and 29.2 million tonnes, respectively, the highest since 2007 before the start of the global financial crisis. "They don't want to cut output because it would boost their fixed costs. They would rather step up exports," Kurosaka said. Nippon Steel and JFE export nearly half of their output and their export ratio in the first half edged up from the previous six months. Nippon Steel forecast an increase in the second half while JFE said the ratio will be flat. Imports, meanwhile, increased for an 11th straight month in September, climbing 28.6 percent to about 407,000 tonnes. Inventories soared to 5.93 million tonnes at end-September, the highest since October 2001, even as crude steel output fell 0.5 percent to 55.56 million tonnes in first-half, the first drop in three years. Earlier this month, the trade ministry predicted a small drop also for the October-December quarter. Steelmakers' Earnings Slumping raw material costs nevertheless pushed JFE's recurring profit, pre-tax income before one-off items, up 23 percent, in the six months through September. Nippon Steel eked out a 2 percent profit gain after taking charges for a string of incidents at one of its main factories. Both companies beat their earnings forecasts because of higher margins and JFE boosted its full-year outlook by 11 percent while Nippon Steel stuck to its estimate. "Steelmakers have managed to maintain product prices so far this year despite falling prices for raw materials. But if inventories of steel products remain high, they face the risk of narrowing margins," said Yuji Matsumoto, analyst at Nomura Securities. Monthly output of automobiles, a key customer of steel, fell 2.6 percent to 851,051 vehicles in September and extended the drop for a third month, while housing starts dipped by 14.3 percent to 75,882 units in September, falling for the seventh month in a row. "The pullback in demand after the tax hike is slowly subsiding," Nippon Steel's Executive Vice President Katsuhiko Ota told an earnings briefing on Thursday. "Steel demand for warehouses, hospitals and schools remains strong, while demand from shipbuilders is also solid." he added. Eiji Hayashida, chairman of the Japan Iron and Steel Federation and the head of JFE Steel, said on Tuesday domestic steel demand is on track to recover but added that Chinese exports are a risk factor for the Japanese market. China's steel product exports surged 40 percent in the first nine months of 2014 as a slowing economy cut steel demand there and forced mills to sell elsewhere. Prices of rebar futures in Shanghai, the world's most liquid steel futures <0#SRB:>, fell this month to the lowest since their 2009 launch. Faced with slow demand at home and piled up inventories, Tokyo Steel Manufacturing, Japan's top electric arc furnace steelmaker, said last week it will cut prices of all its products for delivery in November by 3,000 yen ($27.43) a tonne. "Steel product prices are weakening in Asia as China is stepping up its exports while steel demand at home has not been as strong as we had expected due in part to labour shortages," Tokyo Steel's Managing Director Kiyoshi Imamura said. (Reuters)