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Tokyo Steel Widens Loss Outlook on Impairment Charge

Tokyo Steel Manufacturing Co. (5423), Japan’s biggest maker of steel from scrap iron, widened its annual loss forecast almost ninefold on a 128 billion yen ($1.3 billion) impairment charge related to a plant in central Japan.

The net loss will be 146 billion yen for the 12 months ending March 31, compared with a Jan. 18 estimate of a 16.5 billion yen loss, the Tokyo-based company said today in a statement to the Tokyo Stock Exchange. The operating loss for the period will probably total 17 billion yen, 9.7 percent wider than earlier estimates, according to the statement. The company hasn’t turned a profit since 2009.

A prolonged slump in Europe, combined with excess steel supply in Asia and lower product prices, has forced Tokyo Steel’s Tahara plant near Nagoya to pare production to 60 percent of a forecast made at the start of the year, according to the statement. The writedown could enable the company to swing back to an operating profit in the next financial year, analyst Keiju Kurosaka said.

“The losses at the plant have weighed on the company’s stock price,” said Kurosaka, an analyst at Mitsubishi UFJ Morgan Stanley. “It’s rather positive for its earnings outlook after the writedown.”

The company’s stock has fallen 35 percent over the last 12 months, compared to a 24 percent gain in the benchmark Nikkei 225 Stock Average. It closed up 2.1 percent at 448 yen in Tokyo trading today. The announcement on the impairment was made after the market close.

Tokyo Steel opened the plant, located near a Toyota Motor Corp. (7203) factory, to produce steel for cars and electronics appliances in 2009, its first new plant in 14 years. The company is challenging Nippon Steel Corp. and JFE Holdings Inc. (5411), which dominate the domestic automotive steel market.

Sales are forecast to reach 138 billion yen this fiscal year, 3.5 percent short of its previous estimate.

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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