Nippon Steel’s Profit Surges on Yen, Public Spending

Nippon Steel & Sumitomo Metal Corp.’s profit surged 82 percent in the fourth quarter, the latest example of how Japanese Prime Minister Shinzo Abe’s stimulus policies are boosting the steel industry.

Net income at the world’s second-biggest steelmaker rose to 50 billion yen ($492 million) in the three months ended March 31 from 27.4 billion yen a year earlier, according to Bloomberg calculations based on 12-month results released today by the company in a statement. Sales totaled 1.479 trillion yen.

The result underscores the benefits to steelmakers from Abe’s policy to weaken the yen, which has made Japanese exports of steel, cars and ships more competitive. Abe has also promoted a return to spending on public works as part of his drive to boost the economy and rebuild areas wrecked by the March 2011 earthquake and tsunami.

The company said it sees ‘firm’ overseas steel demand and expects Japan’s economy to continue recovering. No forecast was provided for the current year “due to the difficulty formulating reasonably accurate estimates at this time,” according to today’s statement. Profit will likely increase at a slower pace to 265 billion yen in the current year, according to the median estimate of 18 analysts compiled by Bloomberg.

“Cost reduction will be the biggest contributor to continued earnings growth expected in the current year,” said Kazuhiro Harada, senior analyst at SMBC Nikko Securities Inc.

Cost Cuts

Nippon Steel & Sumitomo was created in October 2012 by the merger of Nippon Steel Corp. and Sumitomo Metal Industries Ltd.

Costs will be lowered by 100 billion yen this fiscal year, Executive Vice President Katsuhiko Ota said today at a briefing in Tokyo. Nippon Steel & Sumitomo will pare costs by buying more low-grade coal and iron ore, the key raw materials used to make steel, and from benefits of the merger.

For the full year ended in March, net income was 242.8 billion yen, above the 230 billion yen analyst estimate. Sales were 5.52 trillion yen, while operating profit reached 298.4 billion yen.

Profit from steelmaking and steel fabrication, a business segment that accounts for about 85 percent of sales, surged almost eightfold to 321.2 billion yen in the 12 months from 41.5 billion yen a year earlier.

The yen traded at 101.7 against the dollar as of 4:10 p.m. in Tokyo. The currency has weakened 15 percent since the end of 2012, the most among Group of 10 currencies.

JFE Holdings Inc., Nippon Steel’s biggest domestic rival, last month reported a 49 percent gain in the fourth quarter. Kobe Steel Ltd., the third-biggest steelmaker in Japan, posted a profit of 6.3 billion yen in the period compared with a loss a year earlier.

Industry Performance

ArcelorMittal, the world’s biggest steelmaker, today reported a 12 percent increase in first-quarter profit and reiterated its full-year earnings target. Earnings before interest, taxes, depreciation and amortization climbed to $1.75 billion from $1.57 billion a year earlier, Luxembourg-based ArcelorMittal said in a statement.

Posco, South Korea’s biggest steelmaker, last month reported a 75 percent profit decline in the quarter ended March 31 because of foreign currency losses and the results of a tax investigation.

Nippon Steel & Sumitomo rose 1.9 percent to 270 yen in Tokyo trading, paring declines this year to 23 percent.

(Updates to add analyst comments in fifth paragraph.)
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