Kobe Steel Slides After Profit Warning on China Excavator Sales

  • Kobelco unit accounted for 21 percent of company profit
  • Kobe Steel forecast cut ‘unexpected’, Nomura analyst says

Kobe Steel Ltd. fell by the most in 17 years after the steelmaker cut its full-year profit target by more than half, citing falling sales at its construction machinery unit because of China’s slowing economy and higher costs related to a power outage at its Kakogawa steelworks.

Kobe Steel fell as much as 13 percent to 125 yen as of 10:44 a.m. in Tokyo trading, which would be the largest drop on a closing basis since September 1998. It was the biggest decliner among shares listed in the benchmark Nikkei 225 stock index.

The steelmaker now forecasts net income of 25 billion yen ($209 million) for the year to March 2016, 58 percent lower than its July forecast of 60 billion yen, the Kobe-based company said Monday in a statement. Kobe Steel had a profit of 86.5 billion yen in the year to March 2015.

The forecast cut is “unexpected,” and is likely to focus investor attention again on the worsening earnings on construction machinery in China, Yuji Matsumoto, an analyst at Nomura Securities Co., said in a report dated Monday.

Sales of diggers built by Kobe Steel’s Kobelco Construction Machinery unit, which competes with larger domestic rival Komatsu Ltd. and Caterpillar Inc. of the U.S., are falling short of estimates as growth in Asia’s biggest economy slows. Kobelco accounted for 17 percent of revenue and 21 percent of current profit in the last fiscal year.

Other steelmakers and construction equipment makers in Japan also fell following Kobe Steel’s revision. Komatsu fell 4.2 percent to 1,730 yen. Nippon Steel & Sumitomo Metal Corp., Japan’s biggest steelmaker, fell 4.7 percent to 2,150 yen as of 10:48 a.m.

Foreign companies’ sales of excavators to China are expected to drop about 40 percent in the 12 months ending in March, Jun Fujioka, president of Kobelco and chairman of the Japan Construction Equipment Manufacturers Association, said last month at a media briefing in Tokyo.

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