October 30, 2013 / 9:07 AM / 4 years ago

UPDATE 1-Nippon Steel raises profit forecast on cost cuts, 'Abenomics' impact

* Plans crude steel output of 458 mln T in 2013/14

* Expects higher H2 steel prices in Japan (Adds details, executive comments)

TOKYO, Oct 30 (Reuters) - Nippon Steel & Sumitomo Metal Corp , the world’s No.2 steelmaker, raised its full-year profit forecast by 13 percent on Wednesday on cost cuts and strong steel demand in Japan, lifted by the Abenomics stimulus programme.

Japan’s overall crude steel production for the April-September period hit a five-year high, buoyed by solid construction demand from government infrastructure spending and a rush to build homes ahead of a sales tax hike next year.

“Steel demand for both construction and manufacturing uses have rebounded in Japan. This is a sign that impacts from Abenomics has spread to steel industry,” Executive Vice President Katsuhiko Ota told a news conference.

“Higher-than-expected prices in the domestic market is a factor behind our profit forecast revision,” Ota said, pointing that its average steel product prices for the April-September half have rebounded for the first time in 2 years.

Nippon Steel, Japan’s top steel producer, said its recurring profit grew nearly nine-fold to 173.7 billion yen ($1.77 billion), which is pre-tax and before one-off items, in the April-September half from a profit of 19.5 billion yen a year ago.

The company, which merged with smaller peer Sumitomo Metal Industries last October, now expects 340 billion yen in recurring profit for the year to March 2014, above the 300 billion yen it forecast three months ago.

The 340 billion yen forecast marks the highest since the combined annual profit of Nippon Steel and Sumitomo Metal Industries in the 2009/10 year, which was 561.9 billion yen.

“Cost reduction is the biggest boost to our earnings this year. Appraisal profits on our raw material inventories and higher steel output are also contributing to a profit recovery,” Ota said.

SHARES SOAR THIS YEAR

The company plans 458 million tonnes of crude steel on parent basis this year, up from 435.5 million tonnes a year ago.

The new forecast, which represents more than four-fold from a year-ago profit of 76.9 billion, missed a consensus estimate of 366.46 billion yen in a poll of 17 analysts in Thomson Reuters I/B/E/S, sending its shares down.

Shares in Nippon Steel have gained about 60 percent this year, outperforming the Nikkei average’s about 38 percent gain.

But Nippon Steel shares closed down 2.7 percent after the announcement, underperforming the benchmark, which closed up 1.2 percent.

Nippon’s upgraded profit forecast flies in the face of a prolonged slump in prices in Asia brought on by massive crude steel output from China.

Last week, POSCO, the world’s fifth largest steelmaker, posted its steepest quarterly fall in operating profit so far this year.

“For the October-March half, we expect domestic prices to move higher, but we don’t expect much improvement in export prices as China continues to increase its steel output.”

$1 = 98.0900 Japanese yen Reporting by Yuka Obayashi; Editing by Jeremy Laurence

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