Nippon Steel said it expects annual profit to fall 14 percent this fiscal year but excluded U.S. Steel from its guidance, citing worsening U.S. market conditions and rising costs. The Japanese steel giant now forecasts an underlying business profit of 680 billion yen ($4.5 billion) for the year ending in March, down from 793.7 billion yen last year.
The company said it left out projections for U.S. Steel — acquired in June for $15 billion — because “the current U.S. steel market conditions are significantly below the levels initially anticipated,” compounded by equipment-related cost increases and “heightened uncertainty in the U.S. market.”
U.S. Steel accounts for about 40 percent of Nippon Steel’s global capacity of 66 million tonnes. Despite short-term weakness, the acquisition remains central to Nippon Steel’s long-term goal of reaching 100 million tonnes in annual production.
“U.S. Steel’s current earnings structure is very fragile, but executing investments will be an extremely effective measure to improve profitability,” Vice Chairman Takahiro Mori said at a recent press conference.
On Tuesday, Nov. 4, U.S. Steel outlined a $14 billion multi-year growth plan with Nippon Steel, including $11 billion in investments by 2028. The two companies expect $500 million in annual synergies by 2030.
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Analysts warn that such heavy capital commitments, combined with decarbonization requirements, could strain Nippon Steel’s balance sheet. “There is risk of a capital raise,” Jefferies said in a note, adding that maintaining high dividends may prove difficult.
Nippon Steel reported a first-half loss of 113.4 billion yen for the six months ending in September, compared with a 243.4 billion yen profit a year earlier. The company now expects a full-year net loss of 60 billion yen — 50 percent deeper than its previous forecast — partly due to a 21 billion yen loss from exiting its investment in Brazilian steelmaker Usiminas.
The Usiminas stake will be transferred to co-shareholder Ternium, with Nippon Steel shifting focus to key markets in the United States, India, and Thailand. “The sale of Usiminas shares is intended to mitigate further impairment risks,” Mori said, citing limited prospects for recovery in Brazil.
Reuters contributed to this report.
