Higher Cost Squeezes Japan Electric Furnace Steels’ Margin

Japanese electric furnace steel makers reported poorer results for April-December from same period of 2009, according to 13 makers’ results announced by Tuesday. Three makers reported lower sales while 10 makers posted higher sales. Five makers reported lower recurring profit while 2 makers posted higher profit. Topy Industries regained profitability while Tokyo Steel Manufacturing and other 4 makers turned into red ink. Higher raw materials cost and lower steel price reduced their margin when ferrous scrap cost increased by near 10,000 yen per tonne while the steel price decreased mainly for concrete reinforcing steel bar despite of their higher sales volume. Recurring profit rate for sales of seven makers, which posted recurring profit for the 9 months in 2009, decreased by 6.1 percentage points to 5.1%.

Twelve makers expect higher sales for fiscal 2010 ending March 2011 while Tokyo Tekko expects lower sales. Three makers expect higher recurring profit while 3 makers expect lower profit. Godo Steel will avoid red ink and other 6 makers will post loss.

Their ferrous scrap cost increased to around 35,000 yen per tonne in the 9 months in 2010 from around 25,000 yen in same period of 2009. The steel sales volume increased by 36% to 1.67 million tonnes for Tokyo Steel and by 34% to 810,000 tonnes for Godo Steel. The steel selling price increased by 4,600 yen to 68,200 yen per tonne for Tokyo Steel and by 2,200 yen to 70,200 yen for Godo Steel while rebar makers’ selling price decreased by several thousands yen to 10,000 yen. Their margin got narrower.

Their margin decreased especially since autumn 2010 when scrap cost started to increase. The thirteen makers’ total recurring profit decreased by 1.964 billion yen in October-December compared with 5.633 billion yen in April-June and 6.181 billion yen in July-September. Most of them targeted to secure profit for the year as of the fiscal year start while higher raw materials cost squeezed the profitability despite of profit for some months.

Yamato Kogyo revised the full year profit target upward for fiscal 2010 while 8 makers revised the target downward and 4 makers left the target unchanged. Scrap cost increased to near 40,000 yen per tonne recently, which impacts on their profitability in January-March when the scrap cost is expected to keep high through the quarter. They try to increase the selling price level. However, the higher price couldn’t improve the profitability for the quarter due to the several months of time lag to reflect the higher price on the shipment. Some makers could post loss for 2 years in a row.