TOKYO (Reuters) - Japan’s top steelmaker Nippon Steel Corp aims to raise product prices and boost productivity by streamlining its manufacturing structure to help shore up faltering earnings, a senior executive told Reuters.
Softening global steel demand for automobiles and machinery amid a prolonged U.S.-China trade row and higher raw materials costs battered the latest round of quarterly earnings at Japan’s steelmakers, forcing many to cut their annual earnings forecasts.
The world’s third-biggest steelmaker, Nippon Steel forecast a 56% drop in business profit in the year through March 2020, as surging iron ore prices and slumping demand in Asia erode its margins.
“Steel demand is weakening this quarter, especially overseas, and is expected to deteriorate later this year,” Nippon Steel Executive Vice President Katsuhiro Miyamoto told Reuters in an interview on Monday.
Demand for flat steel used in automobiles and machinery is slowing in China, prompting fears of an increase in regional exports at a time when the broader Asian economy is stumbling due to the U.S.-China trade war, he said.
“We are worried that flat products will gradually seep out from China to the rest of Asia,” Miyamoto said.
The threat comes as the company looks to pass on a raft of higher costs.
“Our current priority to help improve earnings is to raise product prices as our margins have been squeezed for a long time,” he said, citing rising costs of raw and subsidiary materials and distribution.
In semi-annual price talks with car maker Toyota Motor, Nippon Steel won a steel price rise for April-September of “a few thousand yen” per tonne from the previous six months, according to local media. The company’s steel products averaged 88,100 yen ($836) per tonne in the April-June quarter.
The agreement serves as the benchmark for other steel manufacturers, as well as for sales to the electronics and shipbuilding industries.
Miyamoto confirmed Nippon Steel won a price hike in the talks, but he declined to give a figure and said the rise was not enough to repair the company’s margins.
Nippon Steel also plans to raise productivity at its mills, possibly by consolidating production lines and introducing new technology, Miyamoto said.
“We need to think about how we slim down the manufacturing structure to make it most productive,” he said.
To raise funds, the company plans to generate 200 billion yen ($1.9 billion) by March 2021 through asset sales, mainly cross-held shares in Japanese companies.
The money will be used for overseas acquisitions and upgrading the company’s domestic plants, he said.
While South Korea accounts for about 10 percent of Nippon Steel’s exports, Miyamoto said a worsening Tokyo-Seoul relationship has so far not affected its business with South Korean companies.
Reporting by Yuka Obayashi; editing by Richard Pullin