Nippon Steel Profit Slips

High material costs to blame

Asia's largest steelmaker Nippon Steel said July 31 its net profit slipped in the first quarter to June, as rising material costs sapped gains from rising worldwide demand. Net profit for the three months to June fell 4.5% to 82.76 billion yen (US$767.44 million).

Sales rose 7.4% to 1.199 trillion yen thanks to robust demand in the booming emerging economies known as BRICs -- Brazil, Russia, India and China. But operating profit fell 7.5% to 119.70 billion yen due to rising raw materials costs, the company said.

Prices of iron ore and other raw materials have been rapidly rising on the back of demand in emerging economies. "The unprecedented price rises in iron ore and coking oil and the ongoing surge in market prices for steel scrap, oil and other raw materials for steelmaking are pushing up procurement costs faster than the company's ability to revise its steel material prices," the company said.

But it said it had succeeded in cutting costs and revised its earnings forecast upward for the year, saying it had a better idea of costs after reaching price agreements with suppliers. The company raised its net profit forecast for the full year after sealing agreements with material providers in annual talks. It lifted its net profit outlook to 255 billion yen for the full year, up from 210 billion yen. The revised forecast is still down by 28% from last year's net profit.

The company, the world's largest steelmaker behind behemoth Arcelor Mittalsaid , said that demand remained strong in Japan for steel for cars, shipbuilding, machinery and other industries.
The U.S. economy was on a downtrend but "demand remained strong overall due to support from economic growth in the BRICs as well as other countries," it said.

Copyright Agence France-Presse, 2008

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