Kobe Steel Cuts Profit Target by 58% on China Excavator Sales

28 September 2015

Kobe Steel Ltd. more than halved its full-year profit target after China’s slowing economy hurt sales at its construction machinery unit and a power outage at its Kakogawa steelworks pushed up costs.

The steelmaker now forecasts net income at 25 billion yen ($207 million) for the year to March 2016, 58 percent lower than its July forecast of 60 billion yen, the Kobe-based company said Monday in a statement to the Tokyo Stock Exchange. Kobe Steel had a profit of 86.5 billion yen in the year to March 2015.

Sales of diggers built by its Kobelco Construction Machinery unit, which competes with larger domestic rival Komatsu Ltd. and Caterpillar Inc. of the U.S., are falling short of estimates as growth in Asia’s biggest economy slows. Kobelco accounted for 17 percent of revenue and 21 percent of current profit in the last fiscal year.

Jun Fujioka, president of Kobelco and chairman of the Japan Construction Equipment Manufacturers Association, said last month that foreign companies’ sales of excavators to China are expected to drop about 40 percent this fiscal year.

In a survey of association members, 55 percent thought 2016 will see further sales declines in China, Fujioka said at the Aug. 27 briefing in Tokyo. He also noted that Kobelco’s Chinese operations had cut output to pare excess inventories in response to weakening demand.

Kobe Steel, Japan’s third biggest producer of the metal, cut its full-year sales forecast by 2.6 percent to 1.9 trillion yen and its operating profit target by 24 percent to 95 billion yen, according to its statement. The Kakogawa plant in west Japan is one of two, and profits there will be hit by higher safety costs after July’s power outage and reduced output, it said.