Posted on 29 Jan 2016
JFE Holdings Inc., Japan’s second-biggest steelmaker, cut its full-year profit forecast by half, warning that declining overseas demand, particularly in China, had weakened prices more than expected.
For the year to March, the company said it now expects net income of 25 billion yen ($207 million). It also cut its operating profit forecast for the year by a quarter to 90 billion yen, and its sales forecast by 6.6 percent. JFE said these trends would continue in the fourth quarter, according to a statement accompanying its earnings.
In the nine months to December, JFE posted net income of 37.3 billion yen, a near two-thirds decline from a year ago, and implying that the fourth quarter would see the company swing to a loss. It didn’t break out its third quarter, but according to Bloomberg calculations, net income for the period was about 7.4 billion yen.
Mills worldwide are contending with a global glut of the metal as China, the world’s top producer, exports its surplus in the face of contracting domestic demand. While China’s government has pledged capacity cuts and output has begun to shrink, its steel exports in 2015 still topped 100 million metric tons for the first time. That’s more than Japan, the No. 2 producer, churns out in a year.
China’s deluge has sparked trade tensions and hammered rivals across the globe. South Korea’s Posco reported its smallest ever annual profit on Thursday, while Nippon Steel & Sumitomo Metal Corp., JFE’s bigger domestic rival, cut its full-year earnings forecast in October by almost a third. Nippon Steel reports nine-month earnings Monday.
“Overseas steel prices are falling more than anticipated due to widening oversupply as demand abroad, especially China, continued to decline,” JFE’s Executive Vice President Shinichi Okada told a briefing in Tokyo. “The size of China’s output cuts trail its slowdown in domestic consumption. The country’s record steel exports are having a significant effect.”
Japan Iron and Steel Federation Chairman Koji Kakigi, who also heads JFE’s steel unit, warned last month that the country’s exports could drop more than expected this year, even as domestic demand remains buoyant. In the last fiscal year, nearly half of JFE and Nippon’s steel production was shipped overseas.
JFE forecasts that product prices this quarter will average 62,000 yen a ton, down from the preceding quarter’s 65,100 yen and a year-ago level of 77,300 yen, according to its statement. Its stock closed 3.8 percent higher in Tokyo before its earnings release.
