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Nippon Steel fears China’s economic rebound will sharpen rivals’ edge

China’s faster economic recovery from the coronavirus outbreak gives its steel mills a competitive edge over Japanese companies that have cut output because of weak demand at home and abroad, an executive at Nippon Steel, Japan’s largest steel maker, said.

“China has managed to bring back economic activity quickly while countering the infection, which will give a relative advantage for Chinese mills in boosting competitiveness and financial health,” Nippon Steel Executive Vice President Katsuhiro Miyamoto said on Thursday, in his first media interview since the company reported a record loss for the latest financial year.

“Given the high volume of steel output, China continues to import iron ore when supply is tight due to the pandemic, which will keep prices of the raw material at high levels,” he said.

China’s steel mills are cranking up output as demand recovers in the world’s second-biggest economy following a lifting on curbs on movement and activity imposed to counter the coronavirus epidemic.

Iron ore prices rallied because of China’s recovered appetite.

Nippon Steel is also afraid that Chinese rivals may boost exports if domestic demand starts to falter, Miyamoto added.

The world’s No.3 steelmaker booked a record $4 billion annual net loss for the year ended in March, as a restructuring charge tied to plans to shut nearly 10% of production capacity by 2023 hammered earnings.

Since then, it has announced the temporary closure of five blast furnaces out of 15 by around July, cutting about 30% of its capacity including another furnace being shut early this year, mostly to cope with dwindling demand due to the pandemic.

The disruption from the outbreak of COVID-19, the respiratory disease caused by the novel coronavirus, has also spurred Nippon Steel to bring forward some restructuring measures announced in February prior to the pandemic-led shutdown of Japan’s industry.

“Even before the pandemic, we had expected the global trend seeking to make more things locally would reduce our export demand, but the pandemic has accelerated the reduction speed,” Miyamoto said.

“So we need to speed up our restructuring measures…and we may take additional actions depending on demand,” he said, adding that the firm may close some overseas operations.

The steelmaker has not provided an annual earnings forecast. But, lower output as plants operate at roughly 60% utilisation rates, along with plant shutdown expenses, is likely to slash profits by about 100 billion yen ($933 million) in the April to June quarter, Miyamoto said.
Source: Reuters (Reporting by Yuka Obayashi; Editing by Christian Schmollinger)

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