Nippon Steel Cuts Annual Outlook by One-Third

Nippon Steel, the world's No.4 steelmaker, booked a 44 percent decline in quarterly profit on Friday as exports tumbled and prices sagged due to a supply glut, prompting it to cut its annual outlook by one-third. 

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A shaky global economy and China's tight monetary policy dented demand in China, the world's top producer and consumer, while supply from bulked-up steelmakers in South Korea and China continued to increase, eroding prices. 

Crude steel output in China and South Korea alone surged by 66 million tones, or nearly 10 percent, to 764 million tones in 2011, according to World Steel Association statistics. Most of that was funneled to the export market. 

Nippon Steel, which will emerge as the world's No.2 steelmaker after a merger with Sumitomo Metal in October, recorded  30.0 billion yen ($389 million) in recurring profit, which is pretax and before special items, for the three months ended Dec. 31.  

It trimmed its annual profit outlook to 120 billion yen only three months after the company slashed the forecast by 22 percent to 180 billion yen in October.  

That compares with an average estimate of 170 billion yen in a poll of 20 analysts by Thomson Reuters I/B/E/S. Most analysts, however, had refrained from updating their forecasts due to ongoing talks with large-lot customers on price cuts. 

The yen

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[JPY=  Loading...      ()   ] has been hovering around 77 to the dollar, near a record high. That helped to cut exports of Japanese steelmakers, who generate nearly half of their sales overseas, to a 29-month low in November. Devastating flooding in Thailand, which takes in 10 percent of Japan's steel exports, added to the pain. 

Profit margins will also be squeezed by expected price cuts for automotive steel sheet, a key product for Japanese steelmakers, following a fall in costs of the primary raw materials, iron ore and coal.  

Nippon Steel shares showed little reaction to the earnings release, trading 2.5 percent lower on the day at 196 yen, roughly in line with their level before the announcement, while the broader Nikkei average was down 0.3 percent.

The shares had risen 4.7 percent this year as of Thursday's close, in line with the Nikkei. ($1 = 77.05 yen)