Nippon Steel excludes US Steel from profit guidance on ‘significant’ market challenges

[TOKYO] Nippon Steel, Japan’s biggest steelmaker, said it expects to report a 14 per cent fall in annual profit before one-offs for the current fiscal year.

The figure, though, excludes its outlook for US Steel, due to significant challenges in the US market.

The Japanese steelmaker expects an underlying business profit, or profit adjusted for one-offs, of 680 billion yen (S$5.78 billion) for the year ending in March, down from 793.7 billion yen last year.

Nippon Steel, which acquired US Steel in June in a US$15 billion deal, said it excluded the business from its forecast for this fiscal year because “the current US steel market conditions are significantly below the levels initially anticipated”, in addition to cost rises due to equipment-related issues and “heightened uncertainty in the US market”.

US Steel’s steelmaking capacity is around 40 per cent of Nippon Steel’s global capacity of 66 million tonnes a year.

Nippon Steel views the firm as a key part of its long-term strategy for reaching an annual steelmaking capacity of 100 million tonnes.

“US Steel’s current earnings structure is very fragile, but executing investments will be an extremely effective measure to improve profitability,” Nippon Steel vice-chairman Takahiro Mori said at a press conference, reaffirming the company’s plan to steadily push ahead with investments.

On Tuesday (Nov 4), US Steel announced the spending of US$14 billion on a multi-year growth plan with Nippon Steel, with US$11 billion to be invested by the end of 2028.

Nippon Steel, which steered the US Steel deal through political and union opposition, expects potential synergies of US$0.5 billion annually by 2030, it said.

“On top of decarbonisation requirements, the pledged capital expenditure in the US would make it challenging for the company to keep dividends high,” investment banking and capital markets firm Jefferies said in a note. “Thus, we think that there is a risk of a capital raise.”

Nippon Steel posted a loss of 113.4 billion yen for the six months ending in September, versus a profit of 243.4 billion yen in the same period a year earlier.

The steelmaker also said it expects to report a fiscal full-year loss of 60 billion yen, 50 per cent more than its previous forecast, as it would book a 21 billion yen loss on the exit from the Usiminas steel manufacturing company in Brazil.

Nippon Steel’s minority stake in Usiminas will be transferred to another shareholder, Ternium, as the Japanese company plans to focus, instead, on its key regions – the US, India and Thailand – it said in its results presentation.

“The sale of Usiminas shares is intended to mitigate further impairment risks, as no significant recovery is expected in Brazil soon,” Mori said. REUTERS