TOKYO: JFE Holdings Inc., Japan’s second-biggest steel producer, is sticking to its forecast that prices will recover in the second half, in the belief that Chinese mills currently flooding the world market will have to cut output to stem losses.
“At issue is whether Chinese mills will continue loss-making exports,” said Koji Kakigi, president of JFE Steel Corp., the unit that drives more than 70 percent of the company’s sales. “When the market mechanism works, they will take various steps, like cutting output and lowering plant utilization rates. We anticipate such behavior will occur.”
As China’s economy falters and domestic demand wanes, its steel exports are surging, on pace to reach 100 million metric tons this year. That’s about the same level as total output in Japan, the world’s No. 2 steelmaker. Net profit at medium-to-large mills in the first six months slumped 73 percent from a year earlier, according to a China Iron and Steel Association survey of its members.
That means output cuts, as China’s mills adjust to withstand the prolonged slump in prices, Kakigi said Monday in an interview at the company’s Tokyo headquarters. It should aid a recovery in the half-year ending March 31 for producers competing to supply Asia.
JFE Holdings rose 5 percent to 1,859 yen in Tokyo trading, out-pacing domestic rival Nippon Steel & Sumitomo Metal Corp., which was up 3.9 percent, and the benchmark Nikkei 225 index, up 3.2 percent.
The gains followed China’s stimulus measures late Tuesday and heavy drops in JFE’s stock the previous two days amid concern over the outlook for the Chinese economy. An improvement in China’s economic conditions could lift domestic steel demand and thin its exports.
