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JFE Doesn’t See Steel Disruption If no More Flooding

JFE Holdings Inc., Japan’s second- largest steelmaker, said it doesn’t expect any disruptions in steel output this fiscal year if there isn’t any more heavy rain in Australia.

“We won’t need to worry unless we see new damage from flooding,” Eiji Hayashida, president of the company’s steel unit, told reporters today in Tokyo.

Australia is the largest supplier of coking coal for Japanese steelmakers, accounting for 58 percent of their requirements last financial year, according to data from Tokyo- based Nippon Steel Corp. Steelmakers in Asia may be forced to pay as much as 78 percent more for hard coking coal from April, according to an estimate from Bank of America Merrill Lynch.

JFE imported coal from the U.S., Canada and Russia to secure alternative supplies of the raw material after the rains in Australia, Hayashida said, without giving details. If there is more flooding, JFE will need to buy again from countries outside Australia, he said.

“Prices are going up a lot temporarily,” Hayashida said, adding that the steelmaker will need to monitor price movement for another month before deciding whether and by how much to ask customers to help absorb additional raw material costs.

Shipments from Australia’s Hay Point, the biggest export harbor for the steelmaking commodity, fell 22 percent in December from a month earlier after rain and flooding curbed mine output and disrupted rail networks.

Australian free-on-board prices may increase to $400 a metric ton for three-month contracts starting April 1, from $225 a ton this quarter, Merrill Lynch analysts led by Sydney-based Alex Tonks said in a report yesterday. This compares with the bank’s Jan. 11 forecast of $330 a ton for the second quarter.

To contact the reporter on this story: Masumi Suga in Tokyo at msuga@bloomberg.net

To contact the editor responsible for this story: Jarrett Banks at jbanks15@bloomberg.net

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