Kobe Steel Leads Japan Mills Lower on Annual Loss Forecast

  • Company warns businesses hit hard by China's economic slowdown
  • Shares fall by more in almost three decades as dividend cut

Kobe Steel Ltd. tumbled the most in almost three decades, leading declines in Japanese steelmakers, after reporting it would swing to a loss this year, joining domestic rivals in cutting forecasts on plunging overseas demand.

The stock fell 15 percent to 96 yen in Tokyo, its largest drop since 1987. Kobe was the third-worst performer on the Nikkei 225 stock index, which declined 3.2 percent. Nippon Steel & Sumitomo Metal Corp. dropped 7.9 percent, while JFE Holdings Inc. slid 7.4 percent.

Mills worldwide are contending with a glut as China, the top producer, exports its surplus in the face of contracting domestic demand. Japan’s third-biggest steelmaker expects a loss of 20 billion yen ($166 million) in the year to March against an earlier forecast that net income would be 20 billion yen, according to a statement Tuesday.

“Investors hadn’t assumed that Kobe and other domestic steelmakers’ earnings were that bad,” Yoku Ihara, the president of Growth & Value Stock Research of Japan. Its forecast is a surprise, he said.

Kobe Steel also won’t pay a dividend in the second half. In the last fiscal year, Kobe made 86.5 billion yen. Its loss over the first nine months totaled 13.9 billion yen, compared with a profit a year ago. Nippon Steel has cut its profit forecast by more than a fifth and JFE by half.

Consolidation

In the face of tougher global competition, Nippon Steel said this week it will enter negotiations to take control of Nisshin Steel Co., the country’s fourth-biggest mill. That would also extend Nippon Steel’s leadership in Japan, putting pressure on smaller Kobe Steel, which has avoided mergers with domestic rivals, according to Ihara.

“The global steel industry has entered a period of consolidation after China’s growth stage is over,” Ihara said.

Kobe, which also operates businesses across heavy industry, including the manufacturing of machinery, cranes and construction equipment, said its excavator sales are set to fall more than anticipated, warning that its businesses are being hit hard by China’s slowdown.

Job Losses

At its Kobelco Construction Machinery business in China, the company plans to cut about 200 jobs, or more than 10 percent of the workforce in the current fiscal year, with further reductions possible next year, Kobe Steel’s Executive Vice President Naoto Umehara said at a briefing in Tokyo on Tuesday.

Kobe Steel’s operating income fell 36 percent to 56.6 billion yen for the nine-month period, while sales declined 1.5 percent to 1.35 trillion yen, according to its earnings statement. Kobe’s total charges against subsidiaries and associate companies was 37.5 billion yen over the first nine months, it said.

Kobe’s earnings “left a negative impression,” Kazuhiro Harada, senior analyst at SMBC Nikko Securities Inc., said in a report dated Feb. 2. Its plan to move to lower-grade steel for export to Asia to secure volumes amid declining demand “illustrates just how tough sales conditions are,” he said.

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