UPDATE 3-No forecast from Nippon Steel; costs too volatile

* Jan-March recurring profit Y55.5 bln vs Y58.1 bln consensus

* Analysts see 2010/11 profit at Y308.7 bln

* Sees quarterly crude steel output at 8 mln tonnes (Recasts with company comment)

TOKYO, April 28 (Reuters) - Nippon Steel Corp 5401.T, the world's No.2 steelmaker, failed to give annual profit guidance for the first time, highlighting the industry's uncertainty over raw material costs and the increasingly tough market conditions.

Nippon Steel has tried to stabilise its earnings by shifting focus to high-end sheet steel, but income could swing wildly on volatile spot prices for iron ore and coal, key inputs for producing steel.

Big global miners such as BHP Billiton BHP.AXBLT.L and Rio Tinto (RIO.AX> RIO.L are pressing steelmills to move from annual pricing to more market-sensitive quarterly pricing, but steelmakers worry this will squeeze margins as they will find it harder to pass on the extra costs.

“While we have tentatively agreed to quarterly pricing for some raw materials for April-June, we believe an annual pricing system is best and are still continuing talks with Australian iron ore producers on the system,” Shinichi Taniguchi, Nippon Steel’s executive vice president, told a news conference.

“We won’t be able to provide an annual forecast unless the volatile spot (iron ore) market stabilises,” he said.

Nippon Steel posted weaker-than-expected quarterly recurring profit -- before tax and one-offs -- of 55.5 billion yen ($596 million), rebounding from a year-earlier loss of 74.3 billion yen, but falling just short of two analysts’ consensus for 58.1 billion yen on Thomson Reuters I/B/E/S.

For the year to next March, Nippon Steel is expected to book a recurring profit of 308.7 billion yen, according to a poll of 20 analysts, up from 11.8 billion yen in the year just ended.

Japanese mills’ profits sagged last year as demand from carmakers slumped and competition among five domestic blast furnace mills intensified on weak domestic demand. This resulted in higher stocks of expensive raw materials and products than Asian rivals, triggering huge inventory write-offs.

JFE Holdings Inc 5411.T, the world's sixth-biggest steelmaker, last week posted stronger-than-expected quarterly profit on robust exports, but also passed on its annual forecast. [ID:nTOE63J05K]


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This year, Japan’s top two mills are expected to push up profits to around 50-55 percent of their 2005-06 peak levels as output recovers to 90 percent of capacity.

While rising costs cloud the earnings outlook, strong demand for high-end steel from Asia’s emerging markets make some investors bullish on the stock.

“I see continued strong demand from Asian countries, and even if steel material prices rise further, Nippon Steel will be able to pass these through to product prices,” said Minoru Matsuno, president of Value Search Asset Management.

“Nippon Steel’s strategy of selling higher-end products is no longer seen as unique because other Asian companies are following suit,” said Matsuno, who does not hold Nippon Steel shares. “But Nippon Steel still has a strong advantage in that market.”

Shares of Nippon Steel are down 8.3 percent this year, underperforming the Nikkei average's .N225 5.4 percent gain.

Nippon Steel said it expects crude steel output of 8 million tonnes on a quarterly basis in the financial year to March 2011, while the blast furnace problems it has had in Japan would lower its first-quarter profit by 17 billion yen.

Sumitomo Metal Industries Ltd 5405.T, Japan's third-biggest steelmaker, booked a recurring annual loss of 36.63 billion yen on Wednesday, but said it expects to turn an 80 billion yen profit in the current year. [ID:nJE285N77] Kobe Steel 5406.T posted a recurring profit of 10.26 billion yen for the year just-ended, and gave no annual forecast. [ID:nT286GGQ6F] ($1=93.09 Yen) (Additional reporting by Mariko Katsumura and Sachi Izumi)