Nippon Steel Shares Slump After Loss And Warning on Yen Strength

  • ‘An extremely regrettable result,’ says Nippon’s Sakae
  • Forecast for further weakening in prices in next quarter

Nippon Steel & Sumitomo Metal Corp., Japan’s biggest mill by output, swung to a first-quarter loss as product prices fell, and warned that full-year profit will decline as a stronger yen cuts into exports. The shares slumped the most in a month.

The world’s No. 3 steelmaker reported a net loss of 14.6 billion yen ($139 million) for the three months through June, compared with 72.7 billion yen in net income a year earlier, according to a statement Thursday. Revenue slipped 17 percent and the Tokyo-based company won’t pay an interim dividend. It also warned its ordinary profit over the full year will fall by about a third to 130 billion yen.

“Our impression is negative,” Kazuhiro Harada, an analyst at SMBC Nikko Securities Inc., said in a report after the results and the profit guidance were released. The rising yen is “a heavy drag on profit.”

The yen’s strength is an additional burden for Japanese steelmakers already contending with worldwide overcapacity. As economic growth slows in China, the world’s top steel supplier is exporting its surplus, spurring trade frictions. Nippon Steel’s overseas sales account for almost 40 percent of its total.

Nippon Steel & Sumitomo Metal dropped as much as 6.8 percent to 1,898.0 yen and was 1,920.5 yen as of 10:08 a.m. in Tokyo, heading for the biggest decline since June 24.

The yen is the best performer this year among Group of 10 currencies, rising about 14 percent against the dollar. It last traded around 104.5 to the greenback. Nippon Steel has budgeted for an exchange rate of around 100 yen, a level that the currency briefly topped last month for the first time since 2013.

Domestic Demand

“We have ended up with an extremely regrettable result,” Executive Vice President Toshiharu Sakae told a briefing in Tokyo on Thursday. The company expects improved demand in the second half from domestic car makers and the construction sector, offset by continued weakness in China, according to its statement.

Average product prices fell 18 percent to 68,100 yen a ton in the quarter from a year earlier and Nippon Steel said it expects that they’ll slip to 66,000 yen in the second quarter. The results contrast with rival Posco, which earlier this month reported a 47 percent surge in quarterly net income as it reaped the benefit of higher prices in China over the period and a weaker won.

JFE Holdings Inc. and Kobe Steel Ltd., Japan’s second and third-biggest steelmakers, will report quarterly results on Friday.

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