TOKYO -- Nippon Steel & Sumitomo Metal's overseas businesses are picking up thanks to brisk demand in Southeast Asia and North America, helping to offset weakness at home.
The Japanese company is on track to generate a 20 billion yen ($192 million) pretax profit abroad in the current year through March 2017, turning around from a loss of about the same size last fiscal year.
The Southeast Asian market had been weighed down by an influx of cheap steel from glut-plagued China. But thanks to growing demand in Thailand, Indonesia, Malaysia and elsewhere for steel used in automobiles and electrical machinery, the market is recovering.
The price of hot-rolled coil -- widely used for cars and construction materials -- came to $400 per ton at the end of August in the East Asian market, up about 10% on the year.
Demand for automotive steel is growing in North America, and earnings are recovering at Brazilian equity-method affiliate Usiminas. The affiliate logged a net loss of around 115 billion yen in 2015, due in part to impairment losses on mining facilities and other resource assets. The net loss likely will narrow significantly this fiscal year in the absence of major impairment losses and thanks to cost-cutting.
Nippon Steel's efforts to lift North American and Southeast Asian output are well underway. Last fiscal year, costs for setting up steel-processing facilities weighed heavily. But this fiscal year, fixed costs have gone down and production efficiency has risen. And valuation losses on raw materials will shrink.
Nippon Steel sees group pretax profit plunging 35% to 130 billion yen this fiscal year. The strong yen and price competition from the Chinese have eroded earnings in its Japanese business. When overseas subsidiaries and affiliates are taken out of the picture, pretax profit is expected to fall by half on the year.