JFE Holdings Shares Surge on Pledge to Lower Costs: Tokyo Mover

JFE Holdings Inc. (5411), Japan’s second- largest steelmaker, surged the most in five months in Tokyo after saying it will pare costs to counter falling prices.

The shares rose 7.1 percent to 1,061 yen at the close of trading, the most since Feb. 20. The stock was the top gainer on the key Nikkei 225 Stock Average.

JFE is targeting cost reduction of 120 billion yen ($1.5 billion) in the year ending March 2013 by using cheaper low- grade steelmaking materials, Executive Vice President Shinichi Okada told reporters yesterday in Tokyo after announcing earnings. Net income will probably be 80 billion yen this year, the company said, compared with the 69 billion yen median of 17 analyst estimates compiled by Bloomberg.

“Investors welcomed the management’s message of cutting costs and doing what is required in times of uncertainty,” said Kazuhiro Harada, a senior analyst at SMBC Nikko Securities Inc.

Japanese steelmakers may also benefit from a smaller-than- expected reduction in the price of products supplied to domestic carmakers after the Nikkei newspaper earlier today reported Nippon Steel Corp. (5401) and Toyota Motor Corp. agreed to cut prices of automotive steel by 2,000 yen a ton, or 2 percent, in the six months to September, said Harada, who rates JFE stock “neutral.”

Nippon Steel spokesman Tsuyoshi Yoshizumi and Toyota spokesman Dion Corbett declined to comment on the report.

Nippon Steel gained 6.7 percent to 160 yen and its merger partner Sumitomo Metal Industries Ltd. (5405) rose 5.5 percent to 116 yen. Kobe Steel Ltd. (5406) climbed 4.2 percent. The three Japanese steelmakers are scheduled to report first-quarter results on July 30.

Falling Prices

JFE forecast yesterday it will charge customers 71,000 yen a ton in the three months ending Sept. 30, compared with 85,600 yen a year earlier. Prices fell to 75,700 yen in the first quarter from 82,400 yen a year earlier. The company has yet to conclude price talks with carmakers, Okada said yesterday.

The company forecast full-year sales will increase 4.2 percent to 3.3 trillion yen and operating profit will more than double to 100 billion yen. The targets are “well within reach” given the company’s forecast of saving 120 billion yen from cost cuts, Shinya Yamada, an analyst at Credit Suisse Securities Japan Ltd., said in a report to investors.

For the first quarter ended June 31, current profit, or pretax profit from operations, fell 61 percent to 9.9 billion yen as the strong yen and global oversupply squeezed JFE’s profit margins. Net income more than doubled 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.

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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