Nippon Steel Corporation, the world’s fifth-largest and Japan’s top steel producer, said that China’s pledge to rein in carbon emissions have opened the way for steel companies to achieve their profit target this year. Tighter steel production curbs in China have pulled down global iron ore (the key raw material for steelmaking) prices, thereby providing profit opportunities to many steel companies of the world, including Japan’s.
With the rise in steel prices and the recent plunge in iron ore prices, Nippon Steel expects to exceed its full-year profit target for CY’21, the company’s Executive Vice President, Takahiro Mori, said in an interview given to Bloomberg.
Chinese steel industry accounts for about 15% of the country’s total carbon emissions. Under the strict government’s restrictions, steel output from the world’s biggest producer, China Baosteel Group, fell sharply in Jul’21. The market expects these production cuts to continue for the rest of this year which has caused iron ore prices to fall by about 30% since mid-July. Meanwhile, China’s hot-rolled steel prices have remained stable in the past few months.
“China’s supply policy of cutting output and curbing exports is good not only for us but for all steelmakers,” Mori said.
Nippon Steel had forecast earlier this month that it is expecting net income at JPY 370 billion ($3.4 bn) for this fiscal ending Mar’22, representing a dramatic turnaround from losses over the past two years. However, resurgence in Covid-19 cases in South East Asia and shortage of semi-conductors for automobile production could act as risks to the outlook but are less likely to impact the company’s performance, Mori said.
He further revealed Nippon Steel’s acquisition plans in South East Asia that will supplement its expanding global network. The company is looking to buy integrated steelworks having combined processing units to make finished steel from raw materials.
As Europe, China and Japan have all pledged to achieve zero emissions target, there is a pressure on Japanese mills to develop carbon-free steel. The Japanese government needs to allocate more funds for carbon reduction in order to get on par with China.
Given that China is offering higher amounts to its mills, Mori emphasised, “We can’t win international competition without the second and third round of funding.” To compete with China, Japan’s speed in development of carbon-free steel is vital, he said.
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