JFE to cut steel capacity, predicts record loss

Posted on 30 March 2020

Source: Reuters

JFE Holdings Inc (5411.T) said on Friday it would cut steel capacity by 13% by shutting a blast furnace by March 2024 and predicted a record annual loss because demand has been hit by the U.S.-China trade war.

Japanese steelmakers have been suffering from a weak economy even before the coronavirus crisis hit. They have been affected by the trade tensions and rising costs of raw materials like iron ore, as top producer China has boosted steel output to meet infrastructure demand.

They are also struggling to cope with waning domestic demand due to a decline in population and now the coronavirus epidemic has led to widespread disruptions of industrial activity.

“We face an unprecedented and extremely challenging environment due to slumping steel demand from manufacturing industries hit by the U.S.-China trade war and rising prices of raw materials driven by China’s increased steel output,” JFE Steel President Yoshihisa Kitano told a news conference.

“We will reduce our output capacity by 4 million tonnes to meet weaker demand and realign production lines to focus on high-end products used in automobiles, energy segment and infrastructure,” he said.

“It’s difficult to assess an impact from the pandemic on our business and earnings,” Kitano said, but added that JFE may not be able to show a sharp recovery in earnings in the next financial year starting in April.

JFE, Japan’s second biggest steelmaker, will close a blast furnace and other facilities at the East Japan Works (Keihin) in Kawasaki, near Tokyo, by March 2024 while it will also shut some lines at the East Japan Works (Chiba) by March 2023.

After the shutdown, JFE will have 7 blast furnaces, with an annual capacity of 25-26 million tonnes.

Some 1,200 workers to be affected by the closure will be relocated within the group, the company said, adding that it will treat “in good faith” another 2,000 employees in its partner companies.

In the current year, JFE will book an impairment loss of about 220 billion yen on its production facilities in Chiba and Kawasaki.

As a result, it now predicts a record 190 billion yen ($1.75 billion) net loss for the financial year ending in March, compared with its prior estimate of a net profit of 13 billion yen.

In February, rival Nippon Steel (5401.T) unveiled a plan to shut nearly 10% of its production capacity, an unprecedented move in the once-dominant Japanese steel industry hit by falling demand at home and competition from China. 

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