JFE Holdings Profit Outlook Beats Estimates on Planned Cost Cuts

JFE Holdings Inc. (5411), Japan’s second- largest steelmaker, more than doubled first-quarter profit and forecast full-year earnings will beat estimates as it pares production costs to make up for falling prices.

Profit will probably be 80 billion yen ($1 billion) in the financial year ending March 2013, compared with a loss of 36.6 billion yen a year earlier, the Tokyo-based company said today in a statement. That’s more than the 69 billion yen median estimate of 17 analysts compiled by Bloomberg.

First-quarter current profit, or pretax profit from operations, fell 61 percent to 9.9 billion yen as the strong yen and global oversupply squeezed its profit margins. The company is targeting cost reduction of 120 billion yen this fiscal year by using cheaper low-grade steelmaking materials, Executive Vice President Shinichi Okada told reporters today in Tokyo.

“The company’s forecast may still be a bit too optimistic, given the current environment as the industry struggles with severe demand and product prices,” said Masayuki Otani, a Tokyo-based strategist at Securities Japan Inc.

JFE, which also builds power plants and ships through subsidiaries, rose 2.3 percent to 991 yen at the close on the Tokyo Stock Exchange. The stock has declined 29 percent since the beginning of this year.

Net income surged to 18.1 billion yen in the three months ended June 30 from 7.1 billion yen a year earlier after a one- time earthquake-related charge wasn’t repeated. The company booked a 12.7 billion yen disaster-related charge after the March 2011 earthquake disrupted supply lines at carmakers and other customers.

Sales Forecast

ArcelorMittal (MT), the world’s biggest mill, and South Korea’s Posco posted lower profits as commodity prices weaken and growth slows in China, the biggest consumer of steel. The stronger yen has made Japanese steel more expensive than rival Asian and European products.

JFE forecast full-year sales will increase 4.2 percent to 3.3 trillion yen, in line with the analyst estimates.

Production in the current quarter, excluding affiliates and units, is targeted at 7.2 million metric tons of crude steel, up from 6.94 million tons a year earlier and little changed from the first quarter. Exports account for about 49 percent of its shipments.

The steelmaker expects to charge customers 71,000 yen a ton in the three months ending Sept. 30, less than the 85,600 yen a year earlier. Product prices fell to 75,700 yen in the first quarter from 82,400 yen a year earlier.

China Exports

China’s monthly shipments abroad rose to 8.7 percent of domestic output last month, the highest proportion since July 2010. Chinese steel mills, set for a record production in 2012, are ramping up overseas sales to avoid a softer domestic market, where prices for the commodity have dropped to a two-year low.

ArcelorMittal yesterday posted a 28 percent slump in profit in the April to June quarter as the European debt crisis sapped demand, lowering prices. Posco, South Korea’s biggest mill, said July 24 profit fell 44 percent in the period.

Japan’s currency, which reached a postwar high of 75.35 on Oct. 31, rose about 4 percent against the dollar in the April to June quarter.

JFE Holdings unveiled a plan in April to invest 1 trillion yen over the three years through March 2015 on expansion, with a focus on Asian countries where demand growth is faster than the domestic market. The investment includes construction of its first blast furnace outside Japan. The company is conducting a feasibility study to build integrated steelworks in Vietnam, in which it is the majority holder.

JFE Holdings plans to merge its Universal Shipbuilding unit with IHI Corp. (7013)’s marine unit in October, creating a bigger shipbuilder to compete with rivals in South Korean and China.

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

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