Save
PrintAsian steel firms are bracing for a tough second quarter with potentially lower profit guidance and extended output cuts, but there is some optimism that demand will improve later this year thanks to an expected global recovery.
Second-quarter trading will see little improvement from the previous three months, which pushed many firms into losses, as a broad global economic slowdown keeps demand for cars and construction steel and machinery down between 30-50 percent.
Nippon Steel and JFE in Japan, home to the world's top automaker Toyota, will be the hardest hit in Asia as they struggle with crumbling autosheet demand while a surging yen makes their products less competitive overseas.
"Japanese steel producers' earnings are likely to be very weak in April-June because of low output volume ... but domestic steel supply-demand should bottom out and Asian market conditions are likely to improve," said Takashi Enomoto, a Merrill Lynch analyst.
Japan, the world's No.2 steel producer, expects April-June crude steel output to stay at nearly four-decade lows before recovering in July-September, underscoring the difficulties its steel mills are experiencing.
Analysts expect Japan's steel majors, all of which are forecast to report January-March losses, to swing to a loss in the April-March 2010 year as they may have to accept steep price cuts from struggling automakers.
In China, the sole global producer to increase output, big mills have warned of lower sales and tough trading as Beijing seeks to reduce overcapacity that amounts to Japan's total annual output. Demand has yet to recover despite a nearly $600 billion stimulus package.
Baosteel, China's top steel firm, warned last month that 2009 sales would drop 27 percent after reporting a bigger-than-expected October-December net loss of 6 billion yuan ($878 million). It also cut its benchmark hot-rolled steel prices by 7 percent for May in a second price reduction.
"Baosteel's results and its cautious outlook have some negative read-across for Chinese steelmakers ... in a timely reminder not to get carried away with the improving macro economic data. The sector is not out of the woods yet," Morgan Stanley analysts said in a recent note.
Asian steel prices more than halved to below $500 a tonne from their record highs early last year and are now set to drop further due to slumping demand and sharp falls expected in the price of iron ore -- a key steel making ingredient.
POSCO OUTPERFORMS
South Korea's POSCO, which kicks off the first-quarter earnings season on Friday, may also see quarterly operating profit tumbled to the lowest in nearly seven years, but still beating rivals, as it is helped by a relatively tight domestic market and a low cost structure.
"POSCO's Q1 may disappoint with operating profit falling short of the consensus by 30 percent ... because its unprecedented production cut lowered the utilisation to around 85 percent," said Simon Park, a BNP Paribas analyst.
With South Korea a net steel importer, mills led by POSCO, the world's No.4 steel maker, have kept operation rates at above 80 percent, while overseas firms reduced output by 40-50 percent.
Estimated Q1 Year ago Reporting Date
net profit/loss profit Nippon Steel -39.24 91.93 April 28 JFE Holdings -34.80 28.18 April 24 Sumitomo Metal -12.40 36.27 April 28 Kobe Steel -29.70 20.23 April 28 POSCO 267 1,031 April 10 Baosteel (full year) 8.5 6.5 n/a
Notes: - Baosteel (billions of yuan) for full-year to end-2009. - Japan steelmakers (billions of yen); POSCO (billions of won) - Nippon Steel estimate based on poll of 15 analysts, JFE 14, Sumitomo Metal 10, Kobe Steel 9; POSCO 12; Baosteel 9. (Edited by Amanda)
Copyright © 2013 Ferro-Alloys.Com. All Rights Reserved. Without permission, any unit and individual shall not copy or reprint!
- [Editor:editor]
Daily News
Research
Magazine
Company Database
Customized Database
Conferences
Advertisement
Trade
Tell Us What You Think