Nippon Steel sees steel prices bottoming out

16 February 2016

Production cuts in China mean steel prices have hit a floor but a strong recovery is still a long way off, said a senior executive at Japan's biggest steelmaker, Nippon Steel & Sumitomo Metal Corp.

Steel producers worldwide have seen a slump in prices due to falling demand and increased competition from a flood of exports from China, which produces about 50 percent of the world's steel.

"The (fall in) prices has put most of China's mills into the red," Nippon Steel Executive Vice President Katsuhiko Ota told Reuters in an interview.

China's major steel firms lost a collective 53.1 billion yuan ($8.1 billion) in the first 11 months of last year, the China Iron and Steel Association said last month.

Hot-rolled coil steel prices fell to $260-270 per tonne between November and December, but they have since recovered to about $300, Ota said.

"I don't expect the market to drop to $270 again as everyone had lessons to learn."

Yet a strong recovery in prices is unlikely as any price rise is likely to lead to an uptick in production, starting the 'zig-zag shape' price cycle all over again, Ota said.

China has said it will cut crude steel production capacity by 100-150 million tonnes.

But Shinichiro Ozaki, analyst at Daiwa Securities, said overcapacity was likely to continue, possibly further pressuring steel prices.

China has an annual crude steel capacity of about 1.2 billion tonnes, but local demand stands at 700 million tonnes, he said.

Weak demand and prices forced Nippon Steel to trim its profit forecast for the year ending March 31 by 20 percent, which marked a second downgrade in three months.

Low oil prices, which have plummeted around 75 percent since mid-2014, are also taking their toll, Ota said.

"Oil majors have held back investments, but their production has been maintained, which suggests investments will come back some time in the future," he said.

Nippon Steel is among the world's top makers of seamless pipes used mainly for drilling oil and gas, along with French group Vallourec and Italy's Tenaris.

Ota expects Nippon's sales of seamless pipes to fall about 30 percent to around 800,000 tonnes in the current year to March 31 and sales next year to be flat.


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