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    China Business
     Nov 11, 2005
Chinese steel glut hurts Japanese steelmakers

TOKYO - Continued high inventories of commodity-grade steel caused by a sharp increase in production in China are forcing four major Japanese steelmakers to further cut back output, mainly for export and building construction.

Japanese steelmakers are bracing for a slower pace of profit growth due to the production cutbacks, even though they all posted record consolidated pretax profits in the first half of the



year ended September 30, and are still forecasting all-time high profits for the full year through next March.

Nippon Steel Corporation, for example, reduced its production of commodity-grade steel for export by 600,000 tons in the April-September period. The company now plans to cut production a further 400,000 tons to 1 million tons during the second half of the fiscal year, ending in March.

The scale of production cutbacks is even larger for JFE Steel Corporation, the core company of JFE Holdings Inc, at 1.3 million tons during the six-month period through March. This follows a reduction of 500,000 tons in the first half.

Since early 2005, the supply of commodity-grade steel has exceeded demand in the US, European and Asian markets. While the supply-and-demand situation has improved in the US and Europe , there are still high inventory levels in Asia due to China ramping up production at a pace of 40 million tons per year, which matches the combined annual output of Nippon Steel and Sumitomo Metal Industries Ltd.

Cuts in production at Nippon Steel are expected to reduce profit by 39 billion yen (US$331.3 million) for the current fiscal year, almost wiping out a projected profit gain of 40 billion yen from the increased production of value-added steel products. JFE Steel expects to see profits fall by 30 billion yen, and this will wipe out the 31 billion yen benefit the company expected from recent cost-cutting efforts. However, Sumitomo Metal and Kobe Steel Ltd will only cut production slightly, so the impact on their profits will be minor.

(Asia Pulse/Nikkei)

 

 
 



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