Nippon Steel back in black
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Carmakers in China are leading demand for high-grade steel.
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TOKYO, Japan (Reuters) -- Nippon Steel Corp, the world's second-biggest steel maker, says it has returned to the black in the first half thanks to buoyant demand in China.
But the steel giant, second only to Europe's Arcelor in crude production, cut its full-year profit forecasts after an explosion at its Nagoya plant in September.
Nippon Steel said Thursday it was cutting its net profit forecast for the year to March to 65 billion yen ($591.8 million) from 70 billion yen because of the effects of the explosion.
Despite the impact of that one-off loss, analysts are bullish on the outlook for Nippon Steel, which gets one-third of its sales overseas and is benefiting from price rises driven by strong demand for high-quality steel sheet in China from auto and electronics makers.
The company's shares are up around 60 percent so far in the business year that started in April, outperforming a 35 percent rise in the benchmark Nikkei average but trailing a 77 percent rise in the iron and steel subindex ISTEL, which is the best-performing sector to date.
Nippon Steel's rivals are also tapping strong demand in China, which is the world's biggest producer of crude steel but has insufficient capacity to supply the high-grade sheet demanded by overseas auto and electronics makers ramping up production there.
Nippon Steel posted a group net profit of 36.73 billion yen for the six months to September, on revenues of 1.34 trillion yen, up 6.9 percent from the same period last year.
The profit surpassed Nippon Steel's September forecast of a 30 billion yen net profit, and compared with a loss of 5.07 billion yen a year earlier on losses from securities holdings.
The forecast did not include the effects of an explosion at its Nagoya steelworks in September that forced the temporary shutdown of two blast furnaces that produce around one-fifth of its total output.
Along with South Korea's POSCO, Nippon Steel and Japanese rival JFE Holdings have a big technological edge over Chinese giants such as Baoshan Iron and Steel in high-grade steel.
POSCO, the world's third-biggest steelmaker, last month posted a 32 percent rise in net profit for the July-September third quarter, while Taiwan's China Steel said its third-quarter profit soared 88 percent on strong China demand.
JFE, the world's biggest steel maker by market value, is expected to post strong first-half results on November 20. JFE hiked its full-year net profit target by 23 percent in September on cost-cutting and strong demand.
JFE, formed by a merger between Japan's NKK Corp and Kawasaki Steel Corp last September, and Nippon Steel raised prices by around eight percent in January -- the first price hike in five years -- on strong demand from the auto industry, their biggest customer.
Japan's steel makers are operating at full capacity, also spurred on by growth in their biggest export market of South Korea, where POSCO has insufficient capacity to keep up with demand.
Nippon Steel's shares gained 40 percent in the April-September half, outperforming a 28 percent rise in the Nikkei average.
Nippon Steel's shares are down 1.7 percent to 227 yen near the close, compared with a 1.33 percent fall in the Nikkei.
Copyright 2003
Reuters. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.
