Japanese steelmakers, led by Nippon Steel & Sumitomo Metal Corp, on Thursday reported a surge in nine-month earnings, shrugging off an industrial quality scandal as Kobe Steel reinstated its annual net profit forecast.
The earnings suggest the steelmakers escaped any sustained negative impact from the scandal kicked off when Kobe Steel in October admitted to discovering widespread product data tampering at some of its plants, undermining Japan’s reputation for manufacturing excellence.
Kobe Steel, Japan’s No.3 steelmaker, said it was reinstating a forecast for its first annual profit in three years, after establishing that the tampering had not impacted the safety of its products, which are used widely in planes, trains and automobiles.
Kobe forecast 45 billion yen ($411 million) of profit for the year through March and also raised its sales prediction, suggesting customers had not abandoned the company after the scandal. Before withdrawing its forecast in October it had expected an annual profit of 35 billion yen.
“Stronger-than-expected profits in steel and construction machineries were behind an increase in annual forecast,” Kazuaki Kawahara, Kobe Steel’s managing executive officer, told a news conference.
Before the scandal – which is expected to cost the company 10 billion yen this year – clouded its outlook, Kobe Steel had posted annual net losses in the two previous years.
In the April-December, Kobe Steel returned to a net profit of 55.8 billion yen from a loss of 36.5 billion yen a year earlier, as higher prices in steel products and higher sales of construction machineries more than offset an impact from the scandal.
Kawahara said its external committee is expected to complete investigation over its data misconduct by the end of this month.
Nippon Steel said it had a 108 percent rise in April-December recurring profit, led by solid demand and higher prices for steel products, and raised its full-year net profit forecast, citing higher-than-expected gains from asset sales.
Japanese steelmakers are enjoying the best market conditions in at least three years. Steel prices have risen on increased production by automakers, while construction is in full swing for Tokyo’s 2020 Olympics.
Nippon Steel’s recurring profit for the nine months through Dec. 31 came to 225.48 billion yen. Its profit forecast for the year to March 31 remained at 300 billion yen, below a mean estimate of 328 billion yen among 13 analysts surveyed by Thomson Reuters I/B/E/S.
“Steel prices at home and abroad are on the rise to reflect solid demand,” said Toshiharu Sakae, Nippon Steel’s executive vice president.
“But we are concerned about (the) raw materials market, especially for higher coking coal prices, and other materials such as zinc and manganese which are becoming an extra cost burden of over 50 billion yen,” he said.
JFE Holdings Inc, Japan’s second-biggest steelmaker, said its recurring profit for the nine months through December nearly quadrupled to 170.44 billion yen.
It raised its full-year profit estimate by 10 percent to 220 billion yen thanks to an appraisal of gains on its raw materials inventory amid higher prices for coking coal and iron ore.