Global steel riding high as profits soar at Japan mill

31 July 2017

Nippon Steel & Sumitomo Metal Corp, Japan’s biggest steelmaker, swung to profit in the latest quarter and predicted full-year earnings will surge 72% as product prices climb, the latest sign that global mills are enjoying a sustained and widespread recovery.

Net income was Yuan 71.4bn ($643mn) in the three months to June 30, flipping from a loss of Yuan 14.6bn a year earlier, the Tokyo-based company said Friday in a filing to the Tokyo Stock Exchange. Current profit will probably rise to Yuan 300bn for the year to March 2018 from Yuan 174.5bn in the prior 12 months, the company said.

Global steelmakers are rebounding as shipments from China, which produces half the world’s supply, shrink to the smallest in three years. Prices of some products have risen to the strongest since 2013 as Asia’s top economy cuts capacity amid robust demand from property and infrastructure.

ArcelorMittal, the world’s biggest mill, reported its best six months in five years, while South Korea’s Posco posted a 44% jump in quarterly profit. Hesteel Co and Angang Steel Co in China also flagged a surge in earnings. Sales increased 29% to Yuan 1.36tn in the latest quarter, Nippon Steel said.

The company also said it plans to pay a dividend of Yuan 25 per share at the end of the second quarter of the fiscal year. Kobe Steel Ltd, the country’s third-largest producer, increased its forecast for net income to Yuan 35bn in the 12 months to March from Yuan 30bn, and compared with a loss of Yuan 23bn a year earlier.

The mill expects strong domestic demand for steel, led by the auto industry, while demand from construction and engineering is likely to gain momentum because of preparations for the 2020 Tokyo Olympics, it said. Steel consumption outside the country is seen staying robust, but the issue of excess capacity in China is still to be resolved. The company ships more than 40% of its steel to overseas markets.

“We take conditions in China as positive,” as exports keep falling, executive vice president Toshiharu Sakae said in Tokyo on Friday. The company expects product prices to rise by Yuan 15,000 to Yuan 83,000 a metric tonne for the first half through September from a year ago, it said. The increase should almost cover costs of key raw materials, including coking coal, Sakae said.

Even with the rise in profits, Nippon Steel’s shares have trailed gains in peers. The mill is little changed in Tokyo this year, while JFE Holdings Inc is up 18% and Posco is trading at the highest since 2014. Angang Steel has gained 30% in Hong Kong, and JSW Steel Ltd, the top mill in India, has added a similar amount.

ArcelorMittal doubled its forecast for global steel demand on Thursday, saying growth could be 3%, compared with its previous upper limit of 1.5%, on strength in European and Chinese construction and faster growth in Russia. “Demand in our core markets is strong, it’s healthy,” Chief Financial Officer Aditya Mittal said. The company’s shares are up 6% this year.

Futures for reinforcement-bar, a basic construction product, jumped 25% in Shanghai this year, and touched the highest since 2013. While China’s steel output has risen to a record, strong local demand helped slash steel exports 28 percent in the first half to the lowest since 2014.

Still, there are concerns that China’s steel boom will falter in the second half as the property market cools and investment growth slows, while output continues to grow. JFE Holdings, Japan’s second-biggest steelmaker, is set to release quarterly earnings on Tuesday.