October 30, 2018 / 10:59 AM / 22 days ago

Japan's JFE, Kobe Steel cut profit outlook on glitches, higher costs

TOKYO (Reuters) - Japanese steelmakers JFE Holdings (5411.T) and Kobe Steel (5406.T) cut their annual profit forecasts on Tuesday due to technical glitches at their plants and higher costs of electricity, distribution and subsidiary materials.

FILE PHOTO: The logo of JFE Holdings Inc is seen at Keihin industrial zone in Kawasaki, south of Tokyo January 30, 2013. REUTERS/Toru Hanai/File Photo

Japanese steelmakers are enjoying solid local demand from automakers and machinery manufacturers as well as the construction sector, which has been in full swing for the 2020 Tokyo Olympics. But natural disasters and glitches at their old facilities have prevented them from producing as much steel as they had planned.

JFE, Japan’s No. 2 steelmaker, trimmed its recurring profit forecast for the year to March 31 to 250 billion yen ($2.2 billion) from an earlier estimate of 260 billion yen. The revised figure missed a consensus forecast of 274.9 billion yen from 10 analysts surveyed by Refinitiv.

The reduction comes as JFE now expects to produce 28 million tonnes of crude steel for the year, down from its previous plan of 29 million tonnes, due to severe rains in July and September and technical trouble at one of its three blast furnaces in western Japan.

“The No. 2 furnace in Kurashiki steelworks has been shut since Oct. 23 due to technical trouble, but we expect the furnace to resume operation in November and return to full operation in late December,” JFE Executive Vice President Shinichi Okada told a news conference.

JFE’s recurring profit for the six months to Sept. 30 grew 41 percent to 143.5 billion yen, helped by higher product prices.

Kobe Steel, Japan’s third-biggest steelmaker, also cut its full-year recurring profit guidance by 10 billion yen to 25 billion yen, blaming higher electricity costs in light of rising oil prices and bigger-than-expected compensation costs on its data-tampering scandal.

The revised forecast fell short of a mean estimate of 45.4 billion yen among 9 analysts.

Kobe Steel’s data-tampering scandal, which affected more than 600 customers and occurred over nearly five decades, shook global faith in Japanese manufacturing prowess.

Its recurring profit for the April-September period plunged about 80 percent to 9.3 billion yen.

The company’s data scandal cut its profit by 6 billion yen during the six months and the company expects the issue will have a profit impact of 11 billion yen for the year, 1 billion yen more than its earlier estimate, said Kobe Steel Senior Managing Executive Officer Yoshihiko Katsukawa.

JFE Holdings’ and Kobe Steel’s bigger rival Nippon Steel & Sumitomo Metal (5401.T) is due to announce its earnings result on Friday.

($1 = 112.8100 yen)

Reporting by Yuka Obayashi; Editing by Tom Hogue

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