Nippon Steel Corp., Japan’s top steelmaker, expects profit margins on steel salesin Asia will remain weak through March because of sluggish demand in the world’s top consumer China and in the region, a senior executive said.

But the world’s fourth-biggest steelmaker is still on track to achieve a record annual business profit excluding one-off items in the 2023/24 fiscal year, driven by stronger earnings from high-end products and improved marginal profit following a series of restructurings, Executive Vice President Takahiro Mori said.

“China’s National Development and Reform Commission is telling local steelmakers not to raise production to keep steel output in line with last year’s level, but in reality, the effect is not readily visible,” Mori told Reuters in an interview this week.

“Given the current economic situation in China which is fairly bad, it’s a bit difficult to imagine that spreads will widen in Asia,” he said, referring to the profit margin from steel sales.

Beijing wants to curb steel production to tackle climate change, but the economy is so weak that it may not be able to force the mills to slash output because of concerns over theimpact to employment, Mori said.

A surge in China’s steel exports is unlikely, but their excess steel will continue to “seep into” Asia, he said.

Asian steel prices have recovered from this year’s lows in May, but remained under pressure in recent months amid the patchy economic recovery in China.

Early this month, Nippon Steel raised its full-year net profit forecast by 8% on falling prices of raw materials, and boosted its estimate of business profit, excluding one-off items, by 5% to a record 840 billion yen ($5.8 billion).

“If we can increase our (steel) shipment by 1 million tonnes, it would lift our business profit by 30-50 billion yen,” he said.

The company now assumes an annual steel shipment of 32 million tonnes this year.

TECK DEAL
Nippon Steel is still in talks with Teck Resources TECKb.TO as it remains eager to take a stake in Teck’s high-grade coking coal unit Elk Valley Resources (EVR), Mori said, adding it wants to settle the deal by the end of the year.

“We want to make the unit our equity-method affiliate, so our investment will not be less than 15%, but will not be as big as 30% or 40%,” he said, without elaborating.

Nippon Steel said in February it will spend around 1.15 billion Canadian dollars ($848 million) to buy a 10% stake in EVR, with a right to raise its stake to maximum 17.5%.

But the deal fell through as Teck has since received several proposals for its steelmaking coal business, including from Glencore.

Glencore in June offered to buy Teck’s coal business as a standalone unit, after the Canadian miner twice rebuffed its $22.5 billon offer to combine the two companies.
Source: Reuters (Reporting by Yuka Obayashi and Ritsuko Shimizu; Editing by Christian Schmollinger)