Japan's Top Steel Mills Slash Profit Forecasts on China Glutby and
Nippon Steel also cites demand slump from oil projects
No. 2 mill JFE Holdings halves its current profit forecast
Nippon Steel & Sumitomo Metal Corp. and JFE Holdings Inc. cut their profit forecasts for the year as Japan’s top two steel producers respond to a global supply glut spurred by unprecedented Chinese exports.
Japan’s steel companies are battling against falling prices on export markets, as China, which accounts for about half of global output, ships its excess overseas. The chairman of Japan’s Iron and Steel Federation said last week that China’s inability to soak up all the metal it produces due to slowing growth constitutes the biggest risk facing the steel industry. About 40 percent of Nippon Steel’s revenues came from exports last year.
The world’s biggest producer by market value said it now expects net income for the year through March at 180 billion yen ($1.49 billion), from a previous forecast of 260 billion yen, citing “extremely tough conditions” on overseas markets. At the same time, Japan’s no. 2 mill JFE Holdings halved its forecast for current profit to 100 billion yen.
“China’s overproduction has resulted in big declines in Asian markets,” Katsuhiko Ota, executive vice president at Nippon Steel, said Thursday at a briefing in Tokyo following first-half earnings. He said the company’s margins have fallen to “unprecedented low levels” as a result, and that it will cut export volumes by up to 300,000 metric tons in the second half.
Ota also cited a slowdown in demand for steel from oil projects following the collapse in crude prices.
Nippon Steel’s current profit for the six months through September fell 26 percent to 129.8 billion yen as revenues declined 9.8 percent. Net income rose 7 percent to 120.1 billion yen after a one-time gain from settling a lawsuit with South Korea’s Posco.
JFE Holdings saw current profit fall 47 percent to 48.4 billion yen on a revenue drop of 7 percent. Net income declined 43 percent to 29.9 billion yen.
At a separate briefing in Tokyo, Toshihiro Tanaka, general manager of JFE’s financial department, said the impact of China’s economic slowdown is spreading.
Nippon Steel’s Ota noted reports that Chinese mills are posting huge losses and said that it’s unlikely the companies can withstand such conditions for long. Still, while prices may stop falling, it’s unlikely that the steel industry will see a steep recovery given the gap between supply and demand, he said.
On Wednesday, Baoshan Iron & Steel Co. was the latest of China’s producers to report a deterioration in earnings. The nation’s second-largest mill by output swung to a loss in the third quarter and warned that full-year profit could be wiped out.
Kobe Steel Ltd., Japan’s third-biggest producer, will release first-half earnings on Friday. The company last month slashed its full-year profit target by more than half, citing sales downturns at its construction machinery unit because of China’s slowing economy and higher costs related to a power outage at a domestic steel plant.
Nippon Steel and JFE’s earnings came after the Tokyo market’s close. Nippon ended down 1.1 percent at 2,457.5 yen and JFE down 0.6 percent at 1,872 yen.