Boom for Japan's Largest Steel Mill on China Clean Air Push

(Bloomberg) -- China’s push for better air quality is proving a bonanza for global steelmakers.

Nippon Steel & Sumitomo Metal Corp., Japan’s biggest producer, enjoyed a nine-fold surge in first-half profit as China’s crackdown on pollution and bloated industrial capacity lifted prices to the highest level in more than five years. Posco, the largest Korean mill, said on Thursday it expected to reap higher earnings in the fourth quarter, while Hesteel Co. in China has seen profit more than double in the first nine months.

Net income at Nippon Steel climbed to 99.15 billion yen ($868 million) in the six months ended Sept. 30 from 11 billion yen a year earlier, the Tokyo-based company said in a statement Friday. That was more than the 85 billion yen it forecast in July. The company said full-year net profit will probably gain 30 percent to 170 billion yen.

“Export margins are improving at Japanese steelmakers because Chinese markets are tighter than expected,” Keiju Kurosaka, an analyst at Mitsubishi UFJ Morgan Stanley Securities Co., said before results. China’s production curbs, combined with resilient domestic demand, has slashed steel exports in 2017 to the lowest in four years. A top government official vowed this month that the country will stick with the cuts and prevent shuttered or illegal plants from returning to the market. The nation makes half the world’s steel.

Just as the global steel industry basks in a return to profit after the worst slump in years in 2015, the outlook has soured for Kobe Steel Ltd., Japan’s third-largest producer, after the company admitted that it faked data on metal products for years. While Kobe has forecast net income of 35 billion yen this fiscal year, the company is now weighing whether to withdraw that guidance because it can’t gauge the scandal’s impact.

Kobe ‘Regrettable’

Kobe Steel’s situation is “regrettable,” Nippon Steel Executive Vice President Toshiharu Sakae told reporters on Friday. While the company will continue its alliance with Kobe, it’s not considering any offer of financial support, he said. It also hasn’t received any orders from Kobe customers since the data falsification was revealed, he added.

Kobe Steel is scheduled to report earnings on Monday, while the second-biggest producer, JFE Holdings Inc., is set to release profits on Nov. 1. None of Kobe’s competitors has reported a similar problem with fake data. Nippon Steel said operating profit gained 461 percent to 100 billion yen in the six months through September, while sales increased 27 percent to 2.75 trillion yen.

Nippon Steel expects demand to stay firm in Japan, led by the auto industry, construction and civil engineering, while overseas demand generally is also seen remaining robust, it said in a statement. The company’s shares have risen about 7 percent this year, lagging behind gains of almost 40 percent for rival JFE and more than 30 percent for Posco.

To contact the reporters on this story: Masumi Suga in Tokyo at msuga@bloomberg.net, Ichiro Suzuki in Tokyo at isuzuki@bloomberg.net.

To contact the editors responsible for this story: Jason Rogers at jrogers73@bloomberg.net, James Poole

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