Consolidated segment sales for Kobe Steel’s steel business in fiscal 2011 were flat year on year, at 854.2bn yen (US$10.69bn). Ordinary income declined 38.4bn yen, to a loss of 14.6bn yen (US$182.8M). Although sales prices went up, ordinary income was largely affected by the rise in raw material prices.
The Steel Business produced 7.16Mt crude steel in FY2011 down -5.8% on FY2010. Sales reached 6.01Mt (6.38Mt 2010) and 26.2% of output was exported (on a value basis) (27.1% in 2010). The average of domestic and export selling price was 88600 yen/t ($1109/t) up 6.5% on FY2010.
The sales volume of steel products decreased in FY2011 in comparison to the previous year due to the Great East Japan Earthquake, flooding in Thailand, the sluggish overseas market, the high value of the yen, and other factors. Through negotiations with its customers, Kobe Steel was able to increase the prices of steel products year on year, to reflect higher raw material prices.
Sales of steel castings and forgings decreased year on year, due to lower sales prices to the shipbuilding industry. On the other hand, sales of titanium products went up year on year, owing to rising demand in infrastructure projects from developing countries.
Japan’s economy remained nearly flat from the third quarter (September-December period) of fiscal 2011, ended March 2012. The Great East Japan Earthquake on March 11, 2011 led to a sharp reduction in production levels in the first quarter (April-June period) last year. The effects of the quake had faded by the second quarter (July-September period) and the economy began to recover, but the third quarter onward saw a deceleration of the overseas economy brought about in part by the flooding in Thailand and the high yen value. Although overseas markets, mainly developing countries, continued to gradually grow, the financial turmoil in Europe and monetary tightening in China blunted the pace of growth.
In this economic environment, the Kobe Steel Group saw a decrease in sales volume (in terms of tonnes sold) for steel products, aluminium rolled products, and copper sheet and strip, in comparison to the previous fiscal year.
Sales of hydraulic excavators in China enjoyed strong demand after the Lunar New Year last year, but since April 2011, sales decreased due to monetary tightening in that country.
Kobe Steel Group’s consolidated net sales for fiscal 2011 increased 6.1bn yen year on year, to 1864.6bn yen ($23.3bn) on the back of higher steel prices and other factors. However, the lower sales volume of steel products and aluminium rolled products, lower unit sales of hydraulic excavators in China, higher raw material prices for steel, and other factors decreased operating income by 63.9bn yen, to 60.5bn yen ($757.5M). Ordinary income decreased 55.3bn yen, to 33.7bn yen ($421.9M).
Forecast for Fiscal 2012
The world economy in fiscal 2012, ending March 2013, is anticipated to gradually recovery powered by developing countries, but strong growth is not expected. Concerned by the protracted appreciation of the yen, the Kobe Steel Group expects the severe business environment to continue.
The outlook for the Iron & Steel segment cannot be determined at this time. It is difficult to forecast raw material costs as the prices for the main raw materials, iron ore and coking coal, are decided on a quarterly basis. The prices of steel products are also undetermined as negotiations with customers have not been concluded. In addition, there are many uncertainties regarding the outlook for the economies of China, other developing countries and Europe; exchange rate trends; and other factors. As a result, Kobe Steel is unable to formulate a reasonable earnings forecast for fiscal 2012.