Japan: Tokyo Steel reports decline in Q1FY'25 profits amid operational challenges

Japan Metal Daily: Tokyo Steel reported a decline in its non-consolidated financial performance for the April-June quarter. Net sales dropped 8.6% y-o-y to JPY 93.9 million ($0.61 million), while operating income dropped 21.1% y-o-y to JPY 9.7 million ($0.06 million). Ordinary income and net income also fell by 20.9% and 25.8% y-o-y respectively compared to the same period last year. The company attributed these results to deteriorating profit margins and production disruptions at its Tahara plant, leading to lower-than-anticipated shipments.

Increased costs and margins

According to Komatsuzaki Yuji (company's Director and Managing Executive Officer), in charge of sales, the cost of shipping products increased by JPY 3,200/t ($21/t) compared to the original budget. This was primarily caused by a rise in domestic steel plate prices in February and the acceptance of specific overseas orders. Additionally, the profit margin (spread) on each ton also decreased by JPY 3,600/t ($23/t) compared to the initial projection.

Sales volume and exports

Steel sales volume for the second quarter dipped by 70,000 tonnes (t) compared to the same period last year, totalling 819,000 t. Exports also saw a significant decrease of 82,000 t, accounting for 132,000 t of the total sales. Operational issues at the Tahara plant contributed to a 30,000 t decline in overall sales.

Sales value and composition

The export value ratio contracted significantly by 6.8 percentage points y-o-y to 14.9% compared to the previous year. In terms of quantity, bar steel comprised 41% of sales with sections and bars accounting for 38% and 3%, respectively, a slight decrease of 1% y-o-y. Conversely, steel plates represented 59% of sales with 45% thin plates and 14% thick plates, showing a 1% y-o-y increase from the prior year.

Price trends in the steel industry

The average price of steel products declined in the second quarter compared to the same period last year. The selling price dropped by JPY 3,000/t ($20/t) to JPY 110,400/t ($719/t). Conversely, the cost of iron scrap increased by JPY 1,400/t ($9/t) to JPY 53,300/t ($347/t). As a result, the profit margin, represented by the metal spread, contracted by JPY 4,400/t ($29/t) to JPY 57,100/t ($372/t).

Profit decline amidst cost reductions

Operating profit for the April-June quarter experienced a decline of JPY 2.6 billion ($0.01 billion) compared to the same period in the previous year. While costs were reduced by JPY 1.975 billion ($0.01 billion) primarily due to a significant drop in electricity expenses (over 20%), the overall profit margin was negatively impacted by factors related to product spread. These factors resulted in a profit decrease of JPY 3.608 billion ($0.02 billion) and a quantity-related decline of JPY 967 million ($6 million).

Increased capital investment

Capital expenditures for the April to June quarter reached JPY 5.2 billion ($0.03), a significant surge of JPY 3 billion ($0.01) compared to the same period in the previous year. This substantial growth was primarily driven by investments allocated to the reactivation of the pickling line at the Tahara plant.

Note: This article has been written in accordance with an article exchange agreement between Japan Metal daily and BigMint.