UPDATE 2-Nippon Steel lifts outlook as profit jumps on solid demand at home

Thu Jan 30, 2014 4:25am EST

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TOKYO, Jan 30 (Reuters) - Nippon Steel & Sumitomo Metal Corp , the world's No.2 steelmaker, lifted its annual net profit forecast after posting a nearly nine-fold jump in recurring profit for the October-December quarter on strong demand at home.

Japan's top steel producer said its recurring profit, which is pretax and before one-off items, grew to 108.58 billion yen ($1.06 billion) in the October-December quarter from 12.51 billion yen a year ago.

Nippon Steel's sharp earnings recovery flies in the face of a prolonged slump in prices in Asia brought on by massive crude steel output from China.

South Korean steelmaker POSCO, the world's fifth largest steelmaker, for example, reported a smaller-than-expected 29 percent gain in quarterly operating profit on Tuesday as the stronger won and weak demand sapped steel prices.

Japan's overall crude steel output for the Oct-Dec quarter rose 8.6 percent from a year earlier to 28.14 million tonnes on the back of solid construction demand, led by higher government spending, and a rush to build homes ahead of a sales tax hike in April this year.

"Steel demand for manufacturers is on the rise thanks to the yen's fall, a recovery in the stock market and consumer spending," Executive Vice President Katsuhiko Ota told a news conference.

"Infrastructure works are also strong, helped by the government's extra spending. The Abenomics is giving a boost to an overall steel demand," he said, adding that the company's production lines have been operating at full strength.

Nippon Steel forecast its full-year crude steel output on a parent basis to grow about 5 percent to 45.80 million tonnes, which will mark a 6-year high.

A national sales tax hike in April to 8 percent from 5 percent is widely expected to dampen consumer spending, hitting demand of cars and houses.

"A tax increase may reduce the nation's domestic steel demand by 1 million tonnes and export demand by 0.5 million tonnes next fiscal year," Ota said. He declined to say how much crude steel the company will produce next business year.

For the current year to March 2014, Nippon Steel stuck to its forecast of 340 billion yen in recurring profit, below a consensus estimate of 362 billion yen in a poll of 16 analysts in Thomson Reuters I/B/E/S. That compares with year-ago profit of 76.9 billion yen.

Now it expects 220 billion yen in an annual net profit, instead of its previous forecast of 200 billion yen due to one-off gains from the sale of investment securities.

Behind a steep earnings recovery are also cost-cuts worth 130 billion yen and savings from its merger with former Sumitomo Metal Industries in October 2012, as well as cheaper raw material prices.

Tokyo-based Nippon Steel, which exports about 46 percent of its products, sees steel prices overseas will remain slack as China continues massive production.

"We don't expect steel prices in Asia to rise significantly, but we don't expect prices to further fall either given the fact that many Chinese steel makers are barely making profit," Ota said.

($1 = 102.2500 Japanese yen)

(Reporting by Yuka Obayashi; Editing by Matt Driskill)

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