Nippon Steel & Sumitomo Metal Corp, Japan's top steelmaker, plans to cut crude steel output in the July-September quarter by 690,000 tonnes or 6 percent from a year earlier as it struggles to bring down inventories.

The drop to 10.9 million tonnes is in line with the 6.1 percent fall forecast by the industry ministry in Japan's total crude steel output for the period, which would take it to the lowest level for the quarter in six years.

Steel product inventories at major Japanese wholesalers have been hovering at high levels because of a drop in automobile production and slack housing starts, both hit by a sales tax rise in April last year.

Nippon Steel slashed its crude steel output for the April-June quarter by nearly 9 percent from a year earlier to 10.3 million tonnes.

"Inventory adjustment is taking longer than expected. But it will end in the summer," Nippon Steel's executive vice-president, Katsuhiko Ota, told a news conference on Wednesday.

The world's No.2 steelmaker by output expects domestic steel demand to pick up from the second half of this business year starting in October on the back of higher orders relating to public works, a recovery in automobile production and increased capital spending by the private sector.

"We aim to maintain 10.9 million tonnes of steel output in the third and fourth quarters. We'll make an effort to bring our second-half output to near the 22 million tonnes of the same period a year earlier," Ota said.

A supply glut in Asia due to China's slow demand and its massive exports should not persist as nearly half of that country's big steelmakers were making losses, Ota said. "But the current conditions will not change any time soon," he added.

Nippon Steel reported that its recurring profit, which is pre-tax before one-off items, rose 13.6 percent in April-June from a year earlier as lower raw material costs boosted margins.

The steel industry globally has been struggling with overcapacity and sluggish demand in China, the world's top buyer, but Japanese steelmakers have enjoyed sound earnings because prices at home have remained stable.

However, for the year to March 2016, Nippon Steel forecast an 18.1 percent drop in recurring profit to 370 billion yen ($2.99 billion), below the Thomson Reuters I/B/E/S average estimate of 449.5 billion, due to lower output in the first half and appraisal losses on its raw material stocks after a slump in the price of iron ore.

 

reuters.com

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