Nippon Steel Says Outlook Muddied as Profit Drops by Third

  • Kobe Steel confirms full-year loss as shares dive in Tokyo
  • Nippon cites steel price uncertainty for lack of forecast

Nippon Steel & Sumitomo Metal Corp. the world’s largest steelmaker by market value, said profit fell by almost a third in the twelve months through March and that it couldn’t give a target for the year ahead because the outlook for raw material and steel prices remains unclear.

Full-year net income declined 32 percent to 145.4 billion yen ($1.34 billion), beating the company’s scaled-back forecast of 140 billion yen, according to a statement Thursday. Revenue fell 13 percent on the year while operating profit dropped by more than half. Nippon Steel joins Japan’s second-biggest mill, JFE Holdings Inc., in citing market gyrations as clouding its outlook.

“We expect high price volatility for key raw materials, steel, and that currency movements will continue in the current year,” Nippon Steel’s Executive Vice President Toshiharu Sakae told a briefing in Tokyo. He said the company will give full-year guidance with its first-quarter results in July.

Government stimulus and speculative interest have driven steel prices in China more than 40 percent higher this year, confounding expectations that they would remain weak due to chronic oversupply and slowing growth in the world’s top producer. The rally has improved prospects among competitor nations like Japan, where steel profits have been crushed due to a record flood of Chinese exports last year.

Export Surge

The export surge resumed in March as China’s embattled mills ramped up production to take advantage of higher prices. That’s left Japan’s mills guarded in their outlook and analysts skeptical on whether the rally can be sustained. The yen, meanwhile, rose above 108 to the dollar earlier this month, a level not seen since 2014, making Japanese exports less competitive. In August it traded below 125.

Kobe Steel Ltd. confirmed its February prediction that it would swing to a full-year loss, according to a statement Thursday. Japan’s No. 3 mill saw a worse-than-expected fourth-quarter, according to Bloomberg calculations, and forecast that its net income for the current year would be 20 billion yen, below analysts’ expectations of 29.1 billion yen. The stock fell 8.5 percent in Tokyo. Nippon Steel closed 4.4 percent lower before its earnings announcement.

“It will take time for Asia’s oversupply of steel to be resolved,” Kobe’s Executive Vice President Naoto Umehara told a briefing in Tokyo. “Even if steel prices are rising at the moment, the outlook is unclear.”

Nippon Steel’s Sakae said it’s hard to believe Asian steel prices will keep advancing given that Chinese demand isn’t rising and its output is at a record. The company’s product prices averaged 70,600 yen a metric ton for the three months to March, below the 75,500 yen of the preceding three months and 86,400 yen in the same period a year ago.

Earlier this week, JFE Holdings kept its 2016 profit forecast broadly unchanged on last year, citing uncertainties around the price of steel and its raw materials. Jefferies Group LLC analyst Thanh Ha Pham said the guidance was “a shocker” and downgraded the stock, while Nomura Securities Co. analyst Yuji Matsumoto called the company’s forecast “cautious” given the steel price rally this month.

It’s not all been bad news, however. Earlier this month, South Korea’s Posco, the nation’s biggest mill, posted higher first-quarter profit that beat analysts’ expectations, as rising Chinese steel prices rippled through Asian markets.

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