A slack steel market and ‘skyrocketing’ coking coal prices are behind Nippon Steel & Sumitomo Metal’s decision to downgrade its fiscal 2016 earnings, according to a report by Nikkei Asian Review.
The company is expecting – or rather predicting – a 50% drop in group pretax profits and is slashing profit guidance to around 100 billion yen ($950 million).
With supplies of coking coal from China and Australia falling, NSSMC has contracted with ‘a major overseas resource producer’ and buying coal at US$200/ton for the October to December quarter and this is 2.2 times higher than a year ago.
To compensate for its loss, the Japanese steelmaker is likely to raise prices on automotive steel sheet.
Nikkei also reports that JFE of Japan slashed its full-year pre-tax profit forecast from 65 billion yen to 30 billion yen, a plunge of 53% year-on-year. For JFE, it’s the first time ‘in the red’ since it was formed in 2002 as steel demand weakens at home and abroad.
JFE’s chief financial officer, Shinichi Okada, said that the strengthening yen was ‘chipping away at profit’ and that rising coking coal prices have narrowed profit margins.
Between April and September JFE made a net loss of 8.4 billion yen, down from 29.9 billion yen for the same period a year earlier.