Tuesday, July 28, 2009

World Second-Biggest Steel Maker Nippon Steel Forecasts Deeper H1 Loss

. Tuesday, July 28, 2009

By stockOzone team

Nippon Steel Corp (5401.T), the world's second-biggest steelmaker, swung to a quarterly loss amid weak demand and inventory write-offs and widened its first half loss forecast, pushing its shares down nearly 4 percent.

The results strike a contrast with Japanese rival JFE Holdings Inc (5411.T), which forecast on Tuesday that it would post a profit this year as its core steel business recovers, triggering a sharp rally in its stock.

Nippon Steel also said it would not pay a first half dividend and warned that it may need to revise its full-year forecast for zero profit given the uncertain demand outlook.

"Ahead of the announcement, shares of Nippon Steel had risen following JFE's better-than-expected results, and investors were inevitably disappointed with the first-half downward revision," said Mitsuo Shimizu, deputy general manager of the equity department at Cosmo Securities.

"But I think the steel sector has already hit the bottom and will be on a recovery trail in the second half along with improvement in the overall economy."

Steelmakers globally have taken a beating so far this year as the global economic downturn triggered a slump in demand.

Japanese blast furnace makers now appear to have passed through the worst stage as orders and production are rising, helped by a recovery in demand for exports and cars, where the contraction in orders had been most severe.

Nippon Steel, which trails only ArcelorMittal (ISPA.AS) in the global steel market, plans to restart its biggest blast furnace in southern Japan next month, though it has taken a cautious tone on demand in the second-half.

"Our full-year forecast figures could prove temporary given the unclear environment in the second half," Shinichi Taniguchi, executive vice president of Nippon Steel, said at a news conference.

The company, which also competes with China's Baosteel (600019.SS) and South Korea's POSCO (005490.KS), said its recurring loss, which is before tax and special items, for April-June came to 56.7 billion yen ($600.7 million) compared to a profit of 144.1 billion yen a year earlier.

It widened its recurring loss forecast for the April-September first half by 10 billion yen to 110 billion yen, but kept its full-year outlook at nil, against a consensus estimate of a 3.4 billion yen loss from 17 analysts polled by Thomson Reuters.

JFE, which ranks fifth globally, forecast on Tuesday a 40 billion yen profit for the year to March 2010. Its stock was up 2.8 percent as of 0524 GMT, adding to Tuesday's 7 percent surge.

Recent spikes in export prices and the potential for stronger demand in China are expected to help JFE most among the Japanese blast furnace makers, as exports account for about 40 percent of its sales.

Shares of Nippon Steel were down 3.7 percent at 363 yen. The benchmark Nikkei average .N225 was up 0.2 percent.

($1=94.38 Yen)

Disclosure: Author does not own any of the stocks discussed here.

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