Nippon Steel cuts full-year profit forecast by 6 percent on lower output

TOKYO (Reuters) - Japan’s top steelmaker Nippon Steel & Sumitomo Metal Corp on Wednesday warned its annual profit would be 6 percent less than previously forecast, citing lower crude steel output for the financial year ending on March 31.

FILE PHOTO - The logo of Nippon Steel & Sumitomo Metal Corp.'s Kimitsu steel plant is pictured at its exhibition hall in Kimitsu, Chiba Prefecture, Japan, May 31, 2018. REUTERS/Kim Kyung-Hoon/File Photo GLOBAL BUSINESS WEEK AHEAD

The company now estimates its annual profit will be 330 billion yen ($3.01 billion), down from its earlier guidance of 350 billion yen, under International Financial Reporting Standards (IFRS).

Nippon Steel, the world’s third-biggest steelmaker, also reduced its estimate for its annual crude steel output to 41.3 million tonnes from 42.1 million tonnes on a parent basis, due to troubles at its mills.

“The troubles reflect the lower quality of raw materials,” Nippon Steel Executive Vice President Katsuhiro Miyamoto told a news conference, as well as the difficulties in producing value-added products such as high-tensile steels that can’t be processed in the same volumes as lower-quality metal.

Asked whether the revision is also due to higher prices of iron ore after Vale’s deadly dam burst in Brazil, Miyamoto said that was not factored in, but that the higher prices of the steel-making ingredient may affect earnings in the next financial year starting on April 1.

“Iron ore spot prices have soared since the dam collapse, but futures prices are at lower levels, suggesting that market participants expect the market to stabilize,” Miyamoto said.

Iron ore prices hit a nearly two-year high on Monday.

Nippon Steel’s downward revision follows similar moves by its peers JFE Steel, a unit of JFE Holdings, and Kobe Steel. JFE announced its results on Friday and Kobe on Tuesday.

Japanese steelmakers are enjoying solid domestic demand from automakers as well as the construction sector, which is busy with projects for the 2020 Tokyo Olympics.

But natural disasters and glitches at their aging facilities have prevented them from producing as much steel as they had planned.

In an effort to boost output, Nippon Steel will start operating a new blast furnace, already built in Wakayama in western Japan, in mid-February. It will replace the existing 31-year-old blast furnace at the plants, which is the world’s oldest blast furnace in operation.

Nippon Steel’s recurring profit grew 12 percent to 253 billion yen for the April-December quarter on the back of higher product prices.

The company is set to change its accounting method to IFRS from the Japanese standard at the end of the current financial year.

($1 = 109.7900 yen)

Reporting by Yuka Obayashi; Editing by Kenneth Maxwell and Tom Hogue