Nippon Steel raises profit forecast on higher margins

Japan's Nippon Steel Corp raised its full-year net profit forecast by 12% this week, citing higher margins from higher prices and lower costs following restructuring and capacity cuts.

Net income for the fiscal year ending March 31 is now forecast at a record 670 billion yen ($4.6 billion), up from an August forecast of 600 billion yen and above the average forecast of 483 billion yen among 10 analysts surveyed by Refinitiv.

“This is the result of our efforts over the past two years to increase profits,” Executive Vice President Takahiro Mori said at a press conference, referring to price hikes for key customers such as automakers.

"Fixed costs have been significantly reduced thanks to structural reforms."

The world's fourth-biggest steelmaker said in 2021 it would cut capacity by another 10%, on top of the 10% cut seen a year earlier, citing lower domestic demand and increased competition from China.

The stronger earnings forecast is driven by lower steel production targets, excluding its subsidiaries, at 34mt compared to the previous forecast of 35mt.

“Global demand for steel has slowed quite quickly,” Mori said, adding that the recovery will take some time amid tightening US monetary policy and China’s stringent restrictions to contain the COVID-19 outbreaks.

Net income for the April-September period rose 24.7% to 372 billion yen, driven by higher inventory values ​​and higher product prices as it translated into rising customer costs.

Nippon Steel also announced that its new electric arc furnace in Hirohata, western Japan, went into commercial operation in October as part of efforts to produce lower carbon dioxide (CO2) high-quality steel sheets.