Tokyo Steel Manufacturing Co. (5423), Japan’s biggest producer of steel from scrap iron, expects to see an improvement in business in the second half this fiscal year prompted by Abenomics, the economic-stimulus policies introduced by Prime Minister Shinzo Abe.
“Things will remain tough in the first half as steel demand has yet to be strong enough,” Managing Director Kiyoshi Imamura said April 30 in an interview at the company’s Tokyo headquarters. A recovery will begin in the six months to March 31, aided by public spending and urban development projects which will lift the company’s steel production by 22 percent to 1.1 million metric tons in the period, he said.
To capitalize on Abenomics, Tokyo Steel is this year downplaying production of steel sheets for cars and electric appliances in favor of conventional construction steel. Japan’s ruling Liberal Democratic Party has proposed spending 200 trillion yen ($2.1 trillion) over 10 years to strengthen the country’ infrastructure.
Construction steel will account for 55 percent of steel production in the current year, up from 45 percent in the year- ago period, Imamura said. Steel sheets will account for 45 percent of production.
The company will need to await a price recovery in the global steel market to protect earnings before it takes advantage of the weakening yen to increase sales volumes, Imamura said.
Currency to Weaken
The Japanese currency, which traded at 97.12 yen to the dollar as of 9:19 a.m. in Tokyo, has fallen 12 percent since Abe took office on Dec. 26, easing cost pressures at domestic manufacturers from Toyota Motor Corp. (7203) to Komatsu Ltd. (6301)
The yen will likely fall below 100 yen against the dollar and may reach 105 yen to 110 yen later this year, backed by the strength of the dollar amid optimism that a surge in shale gas production will boost the U.S. economy, Imamura said.
Tokyo Steel last month reported a fourth consecutive year of losses after booking a 129 billion yen ($1.3 billion) impairment charge related to its steel sheet plant in central Japan. It aims to return to a profit of 2 billion yen in the year to March 2014 as demand recovers in the second half and depreciation costs decline.
Tokyo Steel fell as much as 3.6 percent to 378 yen as of 9:55 a.m. on the Tokyo Stock Exchange. The stock has fallen almost 10 percent this year, compared with a 32 percent gain in the benchmark Nikkei 225 Stock Average.
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