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Nippon Steel may cut more blast furnaces to reduce costs

TOKYO (Reuters) - Japan’s top steelmaker Nippon Steel Corp may close more blast furnaces as part of plans to reduce domestic facilities to cut costs, said a senior executive, as falling demand and lower Asian steel prices eat into its annual profit forecast.

The logos of Nippon Steel Corp. are didplayed at the company headquarters in Tokyo, Japan March 18, 2019. Picture taken March 18, 2019. REUTERS/Yuka Obayashi

The world’s third-biggest steelmaker has 15 blast furnaces across Japan with two due to be shut by around March 2024. Any further closures would reduce capacity and could undermine its presence in the growing, but highly-competitive Asian markets.

“Our goal is to bring down fixed cost to a proper level,” Nippon Steel Executive Vice President Katsuhiro Miyamoto told Reuters in an interview on Friday.

“All of the facilities including blast furnaces are possible targets of consolidations,” he said, citing that they need to mirror declining local demand due to shrinking population and higher export barriers amid growing trade conflicts worldwide.

“But nothing has been decided yet,” he added.

Nippon exports more than 40% of its steel output, but the number may fall as Asian countries are seeking to increase local productions and China may ship more steel abroad from their newly-built mills by the coast, he said.

Last month, the steelmaker trimmed its annual profit forecast as slumping steel prices in Asia dented its export margins and a series of suspensions at local facilities, caused by a strong typhoon and a fire, cut its output.

It also announced a restructuring plan at the time to consolidate its 16 domestic bases into six steelworks that will be under the direct control of its president from next April although details were not disclosed.

Miyamoto declined to comment on potential job cut, but said any job redundancy could be offset by transfering to other tasks within the group as there were shortages in some posts.

Japan’s steel industry may benefit from a $122 billion fiscal package announced by Japan government on Thursday to support stalling growth as the stimulus includes spending to build infrastructure to cope with large natural disasters, Miyamoto said.

But slipping exports by its industrial customers, such as auto and auto-parts makers, slower orders by shipbuilders amid prolonged U.S.-Sino trade row and weak steel prices in Asia are cause for anxiety, he said.

To drive growth and offset falling local demand, Nippon Steel has been stepping up overseas expansion.

Last month, India’s Supreme Court cleared the path for ArcelorMittal and Nippon Steel to take over bankrupt Essar Steel, following a legal tussle that has dragged through multiple courts for over two years.

Miyamoto said the buyers’ plan to double Essar’s output in coming years remains unchanged, but they may revise some steps to meet softer steel demand in India and sliding natural gas prices.

Cheaper gas price makes a direct reduction plant, an iron making process utilising natural gas, instead of coking coal, to reduce iron ore, more cost-effective, he said.

“We’ll look into economic efficiency to decide whether to build a blast furnace or direct reduction plant,” he said.

Reporting by Yuka Obayashi; Editing by Michael Perry