Sumitomo Metal Forecasts Loss After Affiliate Asks for Support

Sumitomo Metal Industries Ltd. (5405) forecast a third year of losses after an affiliate took charges to reorganize itself and asked Japan’s third-largest steelmaker for support.

Sumitomo Metal will probably have a loss of 55 billion yen ($722 million) for the financial year ending March 31, the company said today in a statement. In October the company estimated it would break even for the year.

Sumitomo Metal, which is also Japan’s biggest producer of seamless pipes used in oil and gas extraction, today reported a loss of 37.7 billion yen for the nine months to Dec. 31, compared with a profit of 34.9 billion yen a year earlier. Sumco Corp., a silicon wafer maker, forecast a full-year loss of 85 billion yen and asked Sumitomo Metal, which owns a 28 percent stake, to buy preferred shares. Sumco took a charge of 58.2 billion yen.

The company is preparing to merge with Nippon Steel Corp. (5401) on Oct. 1 to create the world’s second-biggest steelmaker and meet competition from Chinese and South Korean rivals.

Nippon Steel, Japan’s largest steelmaker, last week cut its full-year profit target to zero. JFE Holdings Inc. (5411), the second- biggest, forecast its first annual loss since it was created from the merger of Kawasaki Steel Corp. and NKK Corp. in 2002. Kobe Steel Ltd. (5406), ranked fourth, yesterday forecast a 20 billion yen loss this fiscal year, the first in three years.

Sumitomo Metal rose 2 percent to 1,120 yen on the Tokyo Stock Exchange, compared with an 0.8 percent gain in the benchmark Nikkei 225 Stock Average.

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

To contact the editor responsible for this story: Rebecca Keenan at rkeenan5@bloomberg.net.