JFE set to beat profit forecast on steel recovery

Posted on 01 February 2018

Source: Nikkei

Japanese steel giant JFE Holdings is likely to earn as much as 230 billion yen ($2.11 billion) in group pretax profit for the full year ending March, outpacing the estimate of 200 billion yen as the global steel market recovers in response to Chinese production cuts.

JFE may end up reporting 220 billion yen to 230 billion yen in black ink, which would be 2.6-2.7 times fiscal 2016's take. During that year, the market was flooded by Chinese products, and the lower steel prices hurt JFE's profit growth.

Then the Chinese government slashed surplus steel capacity, which resulted in a drop-off in the volume of cheap Chinese steel hitting the international marketplace during the latter half of 2017. The improved business conditions gave JFE more room to raise prices, leading to a jump in profit.

Sales are seen climbing 12% to 3.7 trillion yen, surpassing the company's forecast by 50 billion yen. The Japanese group has seen strong exports to Asian countries, especially coiled sheets used to make vehicle bodies. The price for one ton of regular coiled steel sheets bound for Southeast Asia reached the lower $600 range this January, up around 10% from a year earlier.

Domestically, JFE is capturing higher demand for construction material due to urban redevelopment and projects tied to the 2020 Tokyo Olympics. The company is also negotiating steel price markups with clients in a bid to pass on elevated costs of raw materials.

Because steel prices are gaining both at home and abroad, JFE is expected to command an average price per ton in the mid-70,000 yen range this fiscal year, surpassing the 62,800 yen logged in fiscal 2016. The profit margin is also set to expand.

Rising raw material prices have boosted the value of iron ore, coal and other inventories. The resulting gain from the previously assessed value is another factor lifting the pretax profit above expectations.

JFE likely earned a pretax profit of 160 billion yen to 170 billion yen in the three quarters through December, around four times the figure generated a year earlier. Steel prices, especially for exports, rose higher than anticipated. The company will report that period's results on Thursday. 

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