Nippon Steel lifts forecast despite China worries

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30 Oct 2009

Nippon Steel Corp, the world's No.2 steelmaker, sees pressure on steel prices coming from China ramping up production, as signs of improving demand helped it post a smaller-than-expected second-quarter loss. Nippon Steel, which trails ArcelorMittal and vies with third-ranked Baosteel and No.4 POSCO in Asia, raised its full-year outlook on the strength of a government-backed boost in car sales and strong exports to China, despite trouble at one of its mills.
But production boosts by Chinese mills following Beijing's near-$600 billion stimulus package and rising steel inventories are worrying the company.
"Uncertainties have increased since October as inventories have swelled in China and they began affecting prices in South Korea," Shinichi Taniguchi, executive vice president at Nippon Steel, told a news conference.
"As South Korean mills are also building up capacity, we need to closely watch the demand and supply situation in Japan, China and South Korea."
Nippon Steel's smaller domestic rivals Sumitomo Metal Industries Ltd and Kobe Steel Ltd both posted first-half losses on Thursday, reinforcing the struggle Japanese firms are having to keep up with Asian rivals due to a strong yen and big inventory writedowns..
Earlier this week, ArcelorMittal dampened recovery expectations with a muted forecast for the final quarter even though it returned to profit in July-September,, but POSCO, in contrast, has signalled a brighter outlook for Asian steelmakers on improving global demand.
Baosteel reports later on Thursday.
QUARTERLY LOSS
Nippon Steel on Thursday booked a third consecutive quarterly loss, hit by the worst economic slump in decades and massive inventory writedowns.
The 30.3 billion yen ($334 million) quarterly recurring loss, before tax and special items, was narrower than its own forecast of a 53.3 billion yen loss. The company booked a profit of 118.15 billion yen a year earlier.
Nippon Steel raised its forecast for the year to March to 20 billion yen from a prior estimate for nil profit, above a market consensus for 13.5 billion yen profit, but failed to impress analysts.
"The outlook is neither positive or negative, so the points are whether its stock price is cheap and the momentum of its business," said Tomomi Yamashita, a fund manager at Shinkin Asset Management.
"The current stock price is not so expensive, but the macro conditions are not good enough to encourage buying it up."
Shares of Nippon Steel rose 1.5 percent after the results, bucking a 1.5 percent fall on the Nikkei average, but closed down 0.3 percent. The broader market fell 1.8 percent.
RAW MATERIALS
Nippon Steel's Taniguchi said China's rapid production increase could have daunting effects on iron ore prices next year.
"If China alone continues to raise iron ore imports next year, mining companies will try to raise prices of iron ore even though the overall steel market is weak ... We need to avoid this risk," he said.
Talks between miners and mills to set prices for the 2010 financial year started in Tokyo this week. ($1=90.77 Yen)

Source: Reuters