* Q2 recurring profit 9.8 bln yen vs 146.51 bln yen y-ago
* Annual outlook lags market consensus
* Shares down 2.2% after results, broader market up 0.8%
(Recasts throughout, adds company comment, details)
By Yuko Inoue
TOKYO, Oct 26 JFE Holdings Inc (5411.T), the
world's No.6 steelmaker, reckons Asia's steel market is still
too fragile for it to upgrade its annual profit forecast,
despite a return to profit in the last quarter that beat its
That caution prompted investors to sell down JFE shares on
Monday, and was in contrast to a more upbeat view of the
industry from one of its leading Asian rivals, South Korea's
POSCO (005490.KS), which ranks fourth globally.
POSCO, predicting a 17 percent rise in its October-December
operating profit, said this month the industry's strong
recovery would extend into 2010, driven by demand in emerging
markets such as China and India. [nSEO240394]
JFE said market conditions in Asia remained opaque, with
mills in China, the world's biggest producer, boosting output
and squeezing export prices, while South Korean rivals add new
"We're not sure if the market will continue to improve,"
JFE's Executive Vice President Kohei Wakabayashi told a news
conference. "There's also a question of how long the impact of
government stimulus measures that bolstered demand will last."
JFE stuck to its forecast for recurring profit of 40
billion yen for the year to March, below a consensus estimate
for 47.9 billion yen in a poll of 18 analysts by Thomson
"Its full-year forecast seems a little conservative given
that steel demand for cars is rising," said Kazuyuki Terao,
chief investment officer at RCM Japan Co. "But we cannot become
bullish as Korean steelmakers are scheduled to raise output
JFE competes with world No.2 Nippon Steel Corp (5401.T),
third-ranked Baoshan Iron and Steel (600019.SS) and POSCO.
JFE booked 9.8 billion yen in July-September recurring
profit before tax and special items as it cranked up output on
the back of a government-backed boost for car sales.
That was well below a year-earlier profit of 146.51 billion
yen but better than its own forecast in July for a 2.8 billion
Wakabayashi said JFE maintained a forecast for
October-March crude steel output of 13 million tonnes, up from
12 million tonnes in the first half.
After the results, JFE shares hit an intraday low of 3,110
yen, and ended Monday trading down 2.2 percent at 3,130 yen.
The stock had risen nearly 40 percent this year outshining
bigger rival Nippon Steel as the market cheered JFE's strong
exposure to Asia's export market and lower cost base.
"Maybe it's time we stood back from JFE shares for a while
after the robust rise, but we haven't changed the view that the
global steel market is on a recovery track," said Minoru
Matsuno, president of Value Search Asset Management.
Asia's steelmakers are expected to see sequential earnings
growth by the year-end, helped by an upturn in demand and lower
input costs, although earnings momentum could slow in the
current quarter due to oversupply in China.
The World Steel Association this month forecast steel
demand would fall 8.6 percent this year, a much smaller drop
than the 15 percent it predicted in April. [ID:nPEK171738]
Japanese steel mills' profits will be well below those of
Asian peers this year as annual changes in raw material costs
triggered big inventory writedowns, mostly in April-June. The
Japanese have tougher asset impairment accounting rules than
Nippon Steel, Kobe Steel Ltd (5406.T), Sumitomo Metal
Industries Ltd 5405.T, Baosteel and India's Tata Steel Ltd
(TISC.BO) report quarterly earnings later this week.
(Additional reporting by Nobuhiro Kubo; editing by Ian