UPDATE 2-Nippon Steel to cut 10% of steel output capacity, faces record loss

* Company will shut three blast furnaces and other facilities

* Closure charges expected to lead to record loss

* Annual crude steel output capacity will fall by T5 mln

* Graphic on Japan's steel output: (Adds comment, detail, updates capacity)

TOKYO, Feb 7 (Reuters) - Japan’s Nippon Steel Corp said on Friday it will shut nearly 10% of its production capacity, an unprecedented move in the once-dominant Japanese steel industry hit by falling demand at home and competition from China.

The world’s third-biggest steelmaker is setting aside $3.6 billion in charges and will close three blast furnaces in Japan, as it confronts a period of waning demand as Japan’s population declines.

Nippon expects to book a record loss of 440 billion yen ($4 billion) this financial year, as a result of the charges from the closures, which also include smaller facilities in Japan and some production capacity overseas.

“Industrially, Japan is starting to look a lot like North America and Western Europe with a declining growth environment for steel demand and steel use domestically,” Lachlan Shaw, head of commodities research at National Australia Bank in Melbourne, said.

As Chinese steelmakers improve the quality of their products, he said Nippon Steel was recognising the competitive landscape had changed, although he assumed the company could not yet have factored in the impact of the coronavirus on regional supply chains.

Akio Migita, executive vice president of Nippon Steel, told a news conference the U.S.-China trade war had added to the challenges.

“We have been facing unprecedented harsh conditions with steel demand from the manufacturing industry declining and steel prices slumping amid the U.S.-China trade war,” he said.

A construction boom for this summer’s Olympics in Tokyo has ended, while areas devastated by the 2011 tsunami have also been mostly rebuilt.

Japan’s biggest steelmaker by output will shut the Kure Works in Hiroshima, western Japan, which has two blast furnaces, by the end of September in 2023.

It will also close in 2022 one of the two blast furnaces at Wakayama Works, also in western Japan, where drilling pipes and pipelines used in oil and gas fields are made.

Nippon Steel has 15 blast furnaces across Japan with an annual output of 54 million tonnes of crude steel.

It had previously flagged that it planned close one of the two furnaces in the Kure Works by March 2024, as well as another at its Yawata Works in Kokura on the island of Kyushu by March next year.

Last year, crude steel output in Japan, the world’s third-biggest steel producer, fell 4.8% to 99.28 million tonnes from a year earlier, edging below 100 million tonnes for the first time in 10 years, the Japan Iron and Steel Federation said.

Global crude steel production reached 1.87 billion tonnes last year, up 3.4% from 2018, data from the World Steel Association showed.

Output from China, the world’s biggest producer and consumer, climbed to a record just shy of 1 billion tonnes.

($1 = 109.9200 yen)

Reporting by Yuka Obayashi, Editing by Sherry Jacob-Phillips, Lincoln Feast and Barbara Lewis