Posted on 01 Sep 2023
Nippon Steel Corp, Japan's top steelmaker, expects profit margins on steel sales in Asia will remain weak through March because of sluggish demand in the world's top consumer China and in the region, a senior executive said.
But the world's fourth-biggest steelmaker is still on track to achieve a record annual business profit excluding one-off items in the 2023/24 fiscal year, driven by stronger earnings from high-end products and improved marginal profit following a series of restructurings, Executive Vice President Takahiro Mori said.
"China's National Development and Reform Commission is telling local steelmakers not to raise production to keep steel output in line with last year's level, but in reality, the effect is not readily visible," Mori told Reuters in an interview this week.
"Given the current economic situation in China which is fairly bad, it's a bit difficult to imagine that spreads will widen in Asia," he said, referring to the profit margin from steel sales.
Beijing wants to curb steel production to tackle climate change, but the economy is so weak that it may not be able to force the mills to slash output because of concerns over the impact to employment, Mori said.
A surge in China's steel exports is unlikely, but their excess steel will continue to "seep into" Asia, he said.
Asian steel prices have recovered from this year's lows in May, but remained under pressure in recent months amid the patchy economic recovery in China.
Early this month, Nippon Steel raised its full-year net profit forecast by 8 per cent on falling prices of raw materials, and boosted its estimate of business profit, excluding one-off items, by 5 per cent to a record ¥840 billion (US$5.8 billion).
"If we can increase our (steel) shipment by 1 million tonnes, it would lift our business profit by ¥30-50 billion ," he said.
The company now assumes an annual steel shipment of 32 million tonnes this year.
Nippon Steel is still in talks with Teck Resources as it remains eager to take a stake in Teck's high-grade coking coal unit Elk Valley Resources (EVR), Mori said, adding it wants to settle the deal by the end of the year.
"We want to make the unit our equity-method affiliate, so our investment will not be less than 15 per cent, but will not be as big as 30 per cent or 40 per cent," he said, without elaborating.
Nippon Steel said in February it will spend around 1.15 billion Canadian dollars (US$848 million) to buy a 10 per cent stake in EVR, with a right to raise its stake to maximum 17.5 per cent.
But the deal fell through as Teck has since received several proposals for its steelmaking coal business, including from Glencore.
Glencore in June offered to buy Teck's coal business as a standalone unit, after the Canadian miner twice rebuffed its US$22.5 billlon offer to combine the two companies.
Source:CNA
