Posted on 03 Feb 2017
Nippon Steel & Sumitomo Metal is attempting to negotiate a price hike on steel products, seeking to ease the burden of costly raw materials in an effort that could make or break a difficult fiscal year.
"We're explaining to our customers about high materials costs and asking them to accept a price increase," said Toshiharu Sakae, an executive vice president, carefully choosing his words.
The steelmaker showed some positives in its April-December results Thursday, upgrading its fiscal 2016 net profit forecast and setting a year-end dividend of 25 yen per share. But Nippon Steel still expects group pretax profit to slide 35% to 130 billion yen ($1.15 billion) for the year ending in March. Troubled overseas operations got on track to recovery, but domestic production was smarting from a jump in the price of coking coal.
Nippon Steel and its two Japanese peers are paying $285 per ton for the January-March period, up 40% from the previous quarter. Rising coal prices took a bigger bite out of April-December profits for Nippon Steel and compatriots JFE Holdings and Kobe Steel than any other factor. Nippon Steel's sales dropped 10% on the year to 3.33 trillion yen; its pretax profit plunged 41% to 108.5 billion yen. JFE's pretax profit crumbled 30% to 44.1 billion yen, while Kobe Steel slid into a 26 billion yen pretax loss.
Nippon Steel is negotiating higher prices for steel with automakers and other buyers. Its average steel price is expected to rise to 78,000 yen per ton in the second fiscal half, up 10,000 yen from the first half.
But now coking coal prices are dropping. They were at $170 or so per ton in late January, down roughly 30% from late 2016. China eased restrictions on coal mining late last year as supply tightened, leading prices to soften again.
This raises a potential roadblock to price hikes. "Unfortunately, it's taking somewhat long for high materials costs to filter through to prices of steel materials," Sakae said. Manufacturing-sector customers are cautious about raising their prices, in part because of uncertainty over U.S. President Donald Trump's protectionism, according to a trading house.
Even if Nippon Steel successfully negotiates higher prices, its steelmaking segment's January-March pretax profit would likely reach only 18.2 billion yen -- down 70% from the previous quarter. The company revealed Thursday that it would lose 30 billion yen in profits over fiscal 2016 and fiscal 2017 because of a fire at a mill in southwestern Japan's Oita. Trouble passing along higher costs would put the steelmaker even further from a full recovery.
