April 24, 2014 2:00 am JST

Kobe Steel regains profitability in fiscal 2013

TOKYO -- Kobe Steel Ltd. apparently swung into the black last fiscal year with a pretax profit of around 85 billion yen ($820 million), trouncing the guidance by 15 billion yen as demand picked up in previously struggling businesses.

     The Japanese steelmaker sustained a pretax loss of 18.1 billion yen in fiscal 2012.

     The main factor driving the turnaround was the steel business, which had suffered severe pretax losses in the previous two years. Demand from the auto industry, a major part of the company's customer base, was strong throughout the year ended March 31.

     Demand rose for steel products for a wide range of applications, including steel sheet used in car bodies and wire rods for components. Sale prices likely rose higher than expected thanks to the steady demand from such clients as automakers and parts manufacturers.

     Cost-reduction measures, including keeping down labor costs and using less-expensive materials, lifted profitability as well.

     Kobe Steel apparently produced 7.6 million tons of crude steel on a parent-only basis, up nearly 10% from the prior year. The softening yen made exports more competitive, and fewer cheap imports came in.

     Demand improved in the aluminum and copper business as well, owing chiefly to automakers. Domestic reconstruction-related demand bolstered the crane business and subsidiary Kobelco Construction Machinery Co.

     Kobe Steel also switched to a different method of calculating depreciation, lowering depreciation costs.

     For the current fiscal year, pretax profit is expected to be roughly flat. The company raised about 83 billion yen last fiscal year through an offering of new shares, which will be used for capital outlays at such facilities as the Kakogawa mill to further improve cost competitiveness.

     But prices for such materials as iron ore and coking coal are declining slightly, which may lead to pressure to lower steel product prices. If market conditions for materials worsen, the company may face accounting losses on materials in inventory.