Nippon Steel slashes outlook, sees Q4 loss

News was prepared under the information support of Online Daily Newspaper on Hellenic and international Shipping "Hellenic Shipping News".

30 Jan 2009

Nippon Steel Corp, the world's No.2 steelmaker, cut its profit outlook for this year by a surprise 36 percent and said it would tumble to a loss in the current quarter as a slump in car sales hits its key autosheet business, while demand has slowed from all sectors. As steelmakers band together to pare losses, Nippon Steel said it and a unit would buy up to a 5.9 percent stake in Brazilian steelmaker Usiminas from Vale and take a 15 percent stake in South Korean steelmaker POSCO's $533 million cold-rolled mill venture in Vietnam.
While weaker demand for everything from cars to household appliances has hit earnings at global steelmakers, the outlook at Japan's steel mills is bleaker still, as car makers such as Toyota Motor Corp are its top customers.
Nippon Steel, which ranks behind ArcelorMittal, now sees a pretax recurring profit of 360 billion yen ($4 billion) for the year ending in March, down 36 percent from a year earlier and widely missing a consensus estimate for 512.3 billion yen in a poll of 15 analysts by Reuters Estimates.
It said it is bracing for a 50.4 billion yen loss in the three months, the first quarterly loss since it started reporting quarterly results in January-March of 2006.
The company said output would tumble to 5 million tonnes in January-March, about 60 percent of the year-earlier level.
"This is a shocking output level, unprecedented in our history," Kiichiroh Masuda, Nippon Steel's executive vice president, told a news conference.
The news sent Nippon Steel shares down as much as 3.2 percent before they closed flat at 281 yen, lagging the iron and steel subindex's 0.4 percent gain and the benchmark Nikkei average's 1.8 percent rise.
"Next (business) year, the red will probably continue, at least for the first half," said Koichi Ogawa, chief portfolio manager at Daiwa SB Investments.
Nippon Steel will idle another blast furnace near Tokyo for several months to cope with a planned 4.2 million-tonne output cut in the second-half, in addition to the one in southern Japan.
Faltering demand is hitting steel majors around the globe. U.S. Steel Corp is operating at about 50 percent of capacity, and it and AK Steel said this week they expect to report losses in the first quarter.
South Korea's POSCO, the world's No.4 steelmaker, said this month its 2009 sales could fall up to 12 percent, while Hyundai Steel said this week it sees a 26 percent fall in 2009 sales.
Tata Steel Ltd, the world's No.6, reported a 56 percent slide in net profit in its Indian operations in the three months to December.
CHINA STIMULUS PLAN EYED
Investors said they were sticking to the sidelines to monitor the impact of China's $590 billion economic stimulus package, which they say is key to predict the sector's performance.
"It's hard to move unless it becomes clear how China's investment plans will affect the sector," said Nobuyuki Kashihara, executive officer at Mizuho Asset Management. "We are closely watching the price and volume trends after the Lunar New Year holiday."
Nippon Steel's Masuda said a pickup in steel price in China and the United States is a bright sign. He said inventories will fall to appropriate levels by March and production will recover to match real demand in the July-September quarter.
Still, a big fall in global car sales has fanned speculation that carmakers would squeeze the whole supply chain in upcoming price negotiations, hitting steelmakers' profit margin.
Toyota, the biggest single customer of both Nippon Steel and rival JFE Holdings Inc, sees its first-ever annual operating loss in the year to the end of March.
Japan's leading car makers, Toyota, Honda Motor Co and Nissan Motor Co Ltd, have all cut production as drivers put off big-ticket buys, leaving dealers' yards full of unsold cars.
Nippon Steel and its local competitors are expected, in turn, to press suppliers for big cuts in iron ore and coal prices, with the Nikkei business daily predicting demands for a 40 percent cut for iron ore and up to 70 percent for coal, which could save steelmakers around $33 billion.
In October-December, Nippon Steel posted a pretax recurring profit of 148.19 billion yen, down 1.6 percent, as output stayed high.
Shares in Nippon Steel dropped 25 percent in October-December, roughly in line with Tokyo's iron and steel subindex, but lagging the benchmark Nikkei's 21 percent fall. POSCO fell 14 percent in the same period.

Source: Reuters