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Japanese Steelmakers Eye 275 Billion Yen in Cost Cuts This Year

Nippon Steel & Sumitomo Metal Corp., JFE Holdings Inc. and Kobe Steel Ltd., Japan’s top three steelmakers, plan to pare costs by 275 billion yen ($2.7 billion) this year after a global glut pushed down product prices and curbed earnings at their iron and steel divisions.

Nippon Steel & Sumitomo, created in October by the combination of Nippon Steel Corp. and Sumitomo Metal Industries Ltd., will save 150 billion yen in the year to March 31 with one-third of the cuts resulting from the integration, Executive Vice President Katsuhiko Ota told reporters today in Tokyo. JFE Holdings, Japan’s second-biggest steelmaker, plans 100 billion yen in cuts and Kobe Steel targets 25 billion yen in savings.

One way to pare expenses will be to use cheaper low-grade iron ore and coal, the companies say. The 21 percent decline in the Japanese currency against the U.S. dollar will also make their products more attractive compared with Asian steelmakers.

“The yen’s weakness makes steel made by domestic suppliers more competitive as steel imports to Japan go down,” Nippon Steel’s Ota said. “The second thing is that it provides an incentive for our customers to boost production in Japan, fueling demand for steel.”

Nippon Steel & Sumitomo Metal didn’t provide a full-year profit target today. The company is unable to make a reasonable forecast because it has yet to settle raw material prices and is negotiating product prices with customers.

Net Loss

In its first annual earnings release to consolidate the performance of the two companies, the company had a net loss of 124.6 billion yen in the 12 months ended March 31, compared with its Feb. 14 estimate of a 140 billion yen loss, partially aided by the yen.

JFE Holdings last month posted a 28-fold jump in fourth-quarter profit to 17.6 billion yen, helped by a weaker yen and cost cuts. Kobe Steel forecast net income of 35 billion yen in the fiscal year started April 1, its first annual profit in three years amid cost cuts, which include executive pay.

The loss at Kobe’s iron and steel business widened from a year ago, while current profit at JFE’s steel division dropped.

Hot-rolled coil prices in China, which accounts for about half of global steel production, have fallen 14 percent in the past year amid concerns about industry overcapacity and lower-than-expected economic growth.

The yen traded at 101.04 yen to the dollar as of 3:12 p.m. in Tokyo trading. A further weakening of the yen would make Japan “potentially the most competitive exporter,” Credit Suisse Group AG analysts said in a May 8 report.

Nippon Steel & Sumitomo rose 1.2 percent to 260 yen at the close of trading on the Tokyo Stock Exchange, extending its gain this year to 24 percent. Kobe Steel rose 3.2 percent, while JFE Holdings gained 3.8 percent.

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