Kobe Steel Ltd., the Japanese steel mill that also makes machinery, said its targeting a return to profit next year at its construction equipment unit after paring costs by cutting output.

Removing excess stock in China will help boost earnings at the Kobelco Construction Machinery Co. unit even as demand stays stagnant, Kenji Horiuchi, a spokesman said Tuesday by phone. Kobe forecast last month the unit would have a loss of 16 billion yen ($140 million) this fiscal year, compared with a 21 billion yen profit a year ago.

Kobelco’s Chinese plants were shut for about 10 days a month in the second half of last year to shed excess inventory. There haven’t been any planned shutdowns since January and the unit has increased output, he said.

Kobe Steel warned last month it would report an annual loss in the current year to March, as its construction machinery unit and steel manufacturing business were both hit hard by China’s economic slowdown.

Kobelco produced 17 percent of the company’s sales in the last fiscal year, while iron and steel accounted for 40 percent. The Kobelco unit reported net income of 19.3 billion yen, rising 23 percent from the previous 12 months, according to company statements. Kobe Steel forecast a net loss of 20 billion yen for the current year, the first annual loss in three years.

The Nikkei newspaper on Tuesday reported Kobe Steel’s construction equipment business will likely to return to profit next fiscal year, without saying where it obtained the information.

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