Japan's JFE to raise steel output this fiscal year amid solid domestic demand

28 April 2017

JFE Holdings Inc, Japan's No.2 steelmaker, said it plans to hoist crude steel output in the current fiscal year, tapping into the solid domestic demand that helped lift earnings in the 12 months that ended last March.

With companies raising capital spending and Tokyo's staging of the 2020 Olympics stoking construction projects, JFE expects to produce 29 million tonnes of crude steel in the 12 months through March 2018, executive vice president Shinichi Okada said on Thursday, up 3 percent from last year.

Okada was speaking at a briefing where JFE said recurring profit - pre-tax earnings before one-off items - climbed almost a third to 84.75 billion yen ($762 million) last fiscal year. That number was boosted by hefty appraisal gains on inventories of coking coal and other raw materials, as well as robust demand at home and overseas.

The profit beat both JFE's estimate of 70 billion yen and a consensus estimate of 77.3 billion yen from 10 analysts surveyed by Thomson Reuters. But the firm didn't issue a profit forecast for this fiscal year.

"Our earnings outlook is unclear as coking coal prices have surged after a cyclone in Australia and coal prices for April-June term contract have not been settled," Okada said. While inventory gains boosted last year's results, soaring materials costs cut into its profit margins, he said.

The price of coking coal - a key steel-making ingredient - has been volatile, nearly quadrupling between March and late November last year, but then halving between then and the end of the last fiscal year.

Last month brought a new twist, when Cyclone Debbie hit Australia, cutting rail lines in the world's biggest coking coal export region and sending prices higher again.

While rail links have been restored, Japanese steelmakers have had to scramble for alternative supplies.Mounting global trade tensions also cloud the outlook for steelmakers including JFE.

U.S. President Donald Trump's move to order a probe into whether imports of foreign-made steel are a national security risk has unsettled non-American steelmakers, along with uncertainty over whether he plans to withdraw the United States from the North American Free Trade Agreement (NAFTA).

JFE and U.S. company Nucor Corp said last year they would form a venture to build a plant in central Mexico to supply automakers serving the NAFTA market.

"If any new U.S. measures that would affect our customers' businesses emerge, we may have to think over. But there is no change in our plan at the moment," Okada said.