NEWS

Japan steelmakers see solid profit growth on product price hike

Wednesday, Aug 02, 2017

Japanese steelmakers are upbeat on their earnings for this fiscal year as they are passing heavier raw materials costs on to customers by raising product prices, betting on solid demand at home and abroad.

The main risks to their earnings outlook would be any impact on the economy in China, the world's biggest steel producer and consumer, from policy changes after the 19th National Congress of the Chinese Communist Party later this year, or any action taken by the U.S. government to curb its steel imports.

"Japanese steelmakers will enjoy good results this year as their margins will improve after their price hikes," said Keiju Kurosaka, senior analyst at Mitsubishi UFJ Morgan Stanley Securities.

"But any major change in China's policy or steel market could affect their scenarios," he said. Nippon Steel & Sumitomo Metal Corp, Japan's biggest steelmaker, forecast on Friday a 72 percent jump in its recurring profit for the year to March 31, 2018. Second-ranked JFE Holdings predicted a 136 percent jump on Tuesday.

"Domestic steel demand is solid, driven by projects related to the 2020 Tokyo Olympics and other infrastructure projects, while overseas steel markets have stabilized as China's exports are capped as its products are consumed locally," JFE executive vice president Shinichi Okada said on Tuesday. "We are in a quite favorable business condition," he said.

And while steelmaking expenses have climbed because of spikes in raw materials coking coal and iron ore, Toshiharu Sakae, Nippon Steel's executive vice president, said last week that increased product prices have offset the higher costs.

As for China, its steel output grew 4.6 percent in the first half of 2017, but its exports fell 28 percent. Reflecting strong domestic demand for the metal, steel prices on the Shanghai Futures Exchange SRBcv1 have gained almost 40 percent so far this year.

Still, JFE's Okada said his company should not become too optimistic. "We are concerned over the Chinese economy after the National Congress as it may dramatically change depending on Beijing's policy," he said.

Kobe Steel, Japan's third-largest steelmaker, also raised its full-year forecast by 10 percent to 55 billion yen ($498 million), against a 19 billion yen loss the previous year.

For the April-June quarter, Nippon Steel and JFE swung back to a recurring profit from a loss a year ago, while Kobe posted a six-fold jump in profit.

All three major steelmakers downplayed any direct impact from the possibility of steel tariffs being enacted by U.S. President Donald Trump to curb steel imports.

Still, even though Japan's steel exports to the United States are small, Okada is worried about broader, indirect fallout. "It would be a mess if other countries followed the U.S. to block steel imports," he said.

 

Source:reuters.com

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