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Nippon Steel Boosts Target on Invest Gain as Japan Rebuilds

Nippon Steel & Sumitomo Metal Corp. (5401) raised its annual forecast and its third-quarter profit tripled as it benefited from a weaker yen and building booms at home.

Net income rose to 77.2 billion yen ($753 million) for the three months ended Dec. 31 from 24.7 billion yen a year earlier, according to a statement filed to the Tokyo Stock Exchange. The company, the world’s biggest steelmaker by market value, boosted its profit forecast for the full fiscal year on a securities-related gain, sending its shares higher.

The results underscore how the yen’s 11 percent slide in the past year has buoyed the overseas earnings of exporters including Nippon Steel and Toyota Motor Corp., the company’s biggest auto customer. The yen, combined with domestic spending on infrastructure under Prime Minister Shinzo Abe’s stimulus measures, is rejuvenating Japan’s steel industry in a global market where overcapacity has squeezed margins elsewhere.

“The yen’s appreciation has been corrected, while consumers’ sentiment to buy homes and cars recovers,” Executive Vice President Katsuhiko Ota said today at a press conference in Tokyo. Preparations for the 2020 Tokyo Olympic Games are also spurring demand for construction steel, he added.

Net income may total as much as 220 billion yen in the 12 months ending March 31, compared with an earlier forecast of 200 billion yen, Nippon Steel said. Domestic steel will rise in the second half and exports are projected to remain strong, the company said.

Shares Rebound

The profit target factors in a loss of about 10 billion yen linked to a power outage at the company’s Nagoya steelworks in central Japan. Power failures occurred at the mill on Jan. 17 and Jan. 20.

The Japanese company joined India’s JSW Steel Ltd. and South Korea’s Posco, which reported earnings this week, in flagging concerns that slowing economic growth in China, the world’s biggest steel consumer, would hurt demand.

“Steel exports are projected to remain strong but Chinese steelmakers have persistently maintained a high level of production output,” Nippon Steel said. “While slowing growth in the Chinese and ASEAN economies is a concern, economic conditions in Europe appear to have bottomed out and show signs of recovery.”

Crude steel output in China, which produces half of the global supply, rose by 7.5 percent in 2013 to a record, according to the National Bureau of Statistics. 

Nippon Steel’s shares closed up almost 1 percent at 315 yen. The shares surged as much as 3.2 percent in Tokyo trading in the half hour after the earnings results, rebounding after earlier falling as much as 2.6 percent.

Domestic Demand

Domestic construction orders rose 21 percent to 11.9 trillion yen in 2013, the highest in five years, according to a statement released Jan. 27 by the Japan Federation of Construction Contractors.

Third-quarter sales at Nippon Steel & Sumitomo, formed by the merger of Nippon Steel Corp. and Sumitomo Metal Industries Ltd. on Oct. 1, 2012, were 1.36 trillion yen. The company left its current profit forecast for the full year unchanged at 340 billion yen. The company is on track to meet its cost saving target of 130 billion yen in the current fiscal year, Ota said.

Nippon Steel & Sumitomo plans to produce about 48.3 million metric tons of crude steel in the financial year ending March 31, up 4.9 percent from the previous year, according to the statement.

“Japan’s self-sustaining recovery is gaining momentum, on the back of a recovery in capital investment and consumer spending, stemming from a surge in demand ahead of the scheduled hike in the consumption tax rate,” the company said in today’s earnings statement.

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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