Japanese Steelmaker Losses Mount as Firms Warn on Yen Strength

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  • JFE and Kobe join Nippon Steel in posting quarterly losses
  • Yen is up 14% this year as steelmakers compete amid oversupply

Japan’s top three steelmakers swung to a loss in the first quarter due to a fall in steel prices, and warned of deteriorating conditions for the year ahead as the yen’s rapid appreciation hits earnings.

JFE Holdings Inc.’s loss for the three months through June was 11.7 billion yen ($113 million), compared with net income of 17.3 billion yen a year earlier, according to a statement Friday. Japan’s No. 2 steel company scrapped its interim dividend as revenue slipped 14 percent, and warned it would make a loss in the first half.

Third-biggest mill Kobe Steel Ltd., which is less reliant on metal exports, said Friday it posted a net loss of 2.1 billion yen, after earning 11.9 billion yen a year ago. Revenue fell 12 percent and the company halved its full-year forecast to 10 billion yen. Japan’s top steelmaker, Nippon Steel & Sumitomo Metal Corp., on Thursday posted a first-quarter loss and warned full-year profit would decline by about a third.

The yen, which has strengthened more than 14 percent this year, is an additional burden on Japanese mills, which draw a third or more of their revenues from overseas and must compete with a flood of exports from China. The Japanese currency jumped on Friday as investors signaled that the Bank of Japan isn’t doing enough to charge the economy. It last traded around 103 to the dollar.

Asian Oversupply

“The impact of declines in product prices is big due to oversupply in Asia,” Shinichi Okada, executive vice president at JFE, told a briefing in Tokyo on Friday. “Despite our efforts to improve earnings, results deteriorated on oversupply, differences in inventory valuation, and as the yen appreciated rapidly.”

Nippon Steel said its average product prices fell 18 percent to 68,100 yen a metric ton in the first quarter from a year earlier, and that it expects them to slip to 66,000 yen in the second quarter.

The Japanese companies’ results contrast with their South Korean rival Posco, which earlier in the month posted a surge in quarterly profits as the won weakened. Although a stronger yen cuts the import bill for Japanese companies reliant on steel-making ingredients from overseas, it also reduces the value of their inventories of raw materials.

Nippon Steel fell as much as 6.8 percent and closed 3.9 percent lower in Tokyo on Friday. JFE, which along with Kobe Steel released earnings after the market close, ended 1.5 percent down, while Kobe was unchanged.