Japan: Kobe Steel lowers crude steel output forecast for current fiscal

Kobe Steel, a major Japanese steel producer, recently released its Q2CY23 (April-June) results. The company forecasts its crude steel production to be at around 6.10 million tonnes (mnt) in FY24, lower by a mere 1% against 6.19 mnt seen in FY23. The company had earlier forecasted output of 6.2 mnt for this fiscal. Total sales are estimated to be at around 4.9 mnt in FY23, down 2% against 4.98 mnt in the corresponding period last year.

Slower-than-expected demand in the downstream sectors such as IT, civil engineering, construction as well as semiconductor sectors and a decline in Japanese Automobile manufacturers' overseas production besides China's growth in the EV sector are a few factors that are becoming challenges to the company's business environment.

Key highlights

• Crude steel production down 1% q-o-q: Kobe Steel produced 1.57 mnt of crude steel in April-June 2023 quarter, down 1% in comparison with 1.59 mnt in the same period last year. In the April-September 2023 period, the steel major further expects its output to drop by 2% to nearly 3.10 mnt versus 3.15 mnt produced in the same months of 2022.
  
  
• Sales edge down 6% q-o-q: The company's total sales aggregated to 1.19 mnt (down 6%) in the April-June 2023, out of which 0.92 mnt (down 5%) were domestically sold and 0.27 mnt (down 10%) were exported. Kobe Steel has forecasted its total sales to stand at around 4.90 mnt by the end of the year, down by 2% against 4.98 mnt achieved in the same time period last year.
  
  

• Raw materials cost: Cost of iron ore for the July-September period is settled somewhere around $107/t and for the second half of the year (October-March) it is likely to remain at levels similar to that in H1. Coking coal settled at around $283/t in Q1. In Q2 prices are based on the market conditions. Thermal coal, on the other hand, was in the range of $170-200/t in April. However, since May prices have been on a downtrend and stood at $120-140/t in July.
  
  
• Operating profit: Kobe Steel achieved an operating profit of JPY 8.5 billion from its steel and aluminum business in the April-June period, down by JPY 4.9 billion as against JPY 13.4 billion in the same period of 2022. In FY24, operating profit is expected to be around JPY 33 billion lower than last year's profit of JPY 41.9 billion.
  
  
• Demand outlook from downstream businesses: In the medium to long term, demand from the shipbuilding sector is expected to remain strong. However, demand is likely to drop from the construction and engineering sectors, as construction schedules have been pushed back due to labour shortages.