Godo Plans to Cut Costs as Higher Power Bills Hurt Steelmakers

Godo Steel Ltd. (5410), Japan’s second- biggest producer of steel from scrap iron, plans to cut costs by using lower-grade scrap and trimming transport expenses to counter higher power bills.

The Osaka-based steelmaker aims to save 2 billion yen ($21.4 million) by October 2014, Chief Executive Officer Katsutoshi Kurikawa said in an interview in Tokyo.

“While higher costs from electricity bills aren’t an immediate threat to the industry, the issue could become a ’life-or-death matter’ in the long-term,” said Kurikawa, who also chairs the Non-Integrated Steel Producers’ Association, which represent more than 30 operators of electric arc mills that recycle scrap steel. “We must make efforts to cut costs.”

Kansai Electric Power Co. (9503), which supplies Japan’s second- biggest metropolitan area, is seeking to raise corporate electricity charges by 19 percent from April. The shutting of most of Japan’s nuclear reactors after the Fukushima disaster in March 2011 has forced utilities to turn to higher-cost alternative energy sources.

Godo Steel owns steelworks in western Japan’s Osaka and Himeji cities, where Kansai Electric supplies electricity, and Eastern Japan’s Funabashi city, serviced by Tokyo Electric Power Co., the operator of the Fukushima nuclear plant. Tepco as the Tokyo-based utility is known, raised corporate electricity rates by 16.7 percent from April last year before cutting them to 14.9 percent in September.

The steelmaker last month said it will probably earn net income of 1 billion yen for the financial year ending March 31, down 59 percent in the same period a year earlier.

Falling Demand

Godo Steel fell 1.6 percent to 181 yen as of 9:17 a.m. on the Tokyo Stock Exchange, paring its gain this year to 6.4 percent. The stock was 15 percent owned by Nippon Steel Corp. as of the end of March, before the shareholder merged with Sumitomo Metal Industries Ltd. to form Nippon Steel & Sumitomo Metal Corp. (5401), according to the company’s website.

The company intends to expand sales in Asia outside Japan as domestic steel demand is forecast to continue falling after the country’s construction spending almost halved over the past 20 years, Kurikawa said in the Feb. 13 interview. It produces about 200,000 metric tons to 300,000 tons of billet, semi- processed steel, a year for exports to countries, including Vietnam and South Korea, he said.

While the yen’s depreciation would benefit Godo by making its products more competitive overseas, the company will need to take into account costs on scrap steel and electricity when it boosts exports, Kurikawa said. The yen, which last week weakened as low as 94.46 yen to the dollar, the lowest since May 2010, traded at 93.77 yen as of 9:23 a.m. in Tokyo.

Japan’s nine industry groups, including the non-integrated steelmakers’ association, last month urged the nation’s trade ministry to take measures, including subsidies and resumption of idled nuclear plants to alleviate cost increases.

To contact the reporters on this story: Masumi Suga in Tokyo at msuga@bloomberg.net; Yasumasa Song in Tokyo at ysong9@bloomberg.net

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

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