Kobe Steel President Pledges to Restore Profit by Cutting Costs

Kobe Steel Ltd. (5406), Japan’s third- biggest steelmaker, will return to profit in the next fiscal year by cutting costs, incoming President Hiroya Kawasaki said.

“We are in a very tough business environment, which reflects the company’s earnings released today,” Kawasaki said today at a press conference in Tokyo, where he was appointed to succeed Hiroshi Sato.

Kawasaki, 58, pledged to scale back labor expenses, including executive compensation, as well as procurement costs. The company, based in Kobe, swung to a pretax loss from operations last quarter, and kept its October estimate of a 25 billion-yen ($271 million) annual loss. It scrapped a full-year dividend.

A slowing global economy and a supply glut caused by capacity expansion in China and South Korea has hurt earnings at Asian steelmakers. Posco, South Korea’s biggest steelmaker, said this week an “unprecedented slump” in the industry cut prices and hit profits last year.

Kobe Steel may consider alliances with other companies in steel and other operations to fend off increased competition, Kawasaki said. Nippon Steel Corp. (5401) combined with Sumitomo Metal Industries Ltd. last year to form Nippon Steel & Sumitomo Metal Corp. The merger, which created the second-biggest steelmaker after ArcelorMittal (MT), was designed to compete with rivals in China.

Kawasaki will take office from April 1. Sato, the current president, will become chairman.

Kobe Steel rose 4.4 percent to 118 yen in Tokyo trading, extending its gain for this year to 8.3 percent.

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

To contact the editor responsible for this story: Jason Rogers at jrogers73@bloomberg.net

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