JFE Holdings Inc, the world's third-biggest steelmaker, booked a 2 percent drop in annual profit and delayed issuing a forecast, saying price talks with clients have virtually stalled after an unexpected 240 percent jump in coal prices. The lack of a forecast for the current year to March 2009 triggered a slide of nearly 4 percent in JFE's stock after the announcement.
"The stock fell as the market couldn't get clues for its next move after the company didn't give out the forecasts, which the market wanted to see the most," said Hitoshi Yamamoto, CEO at Fortis Asset Management Japan. The shares closed down 2.6 percent at 5,320 yen, underperforming a 1.9 percent fall in its iron and steel sector peers ISTEL.
The spiralling costs of raw materials and freight are squeezing global steelmakers' earnings, more than outweighing the effects of higher steel prices amid tight supply.
JFE and rival Nippon Steel Corp are looking to increase their steel prices to automakers and other big customers by up to 40 percent, but such companies are resisting a big price hike amid mounting concerns that the fallout from the US subprime trouble could cool demand for their products.
JFE, a big contract supplier to Toyota Motor Corp and other Japanese manufacturers along with Nippon Steel, said pretax recurring profit before special items came to 502.97 billion yen ($4.9 billion) in the year ended March 31. That was slightly above the company's own estimate of 500 billion yen announced in February.
JFE's operating profit in the steel business climbed to a record as prices and output increased, but the yen's ascent caused a foreign exchange loss while high labour and materials costs widened its loss in the engineering division, Eiji Hayashida, senior vice president of JFE, told a news conference.
In the year ahead, Toshikuni Yamazaki, JFE executive vice president, said spikes in iron ore, coal and other raw materials would cost it 800 billion yen ($7.7 billion) more - which is seen equating to a 30 percent cost increase. "Now that coal prices are tripled, talks with our clients have virtually stalled. It's impossible to issue an earnings forecast under the circumstances," Yamazaki told a news conference. The market consensus calls for a profit of 492.33 billion yen in a poll of 12 analysts by Reuters Estimates.
BHP Billiton Ltd and Japan's Mitsubishi Corp said this month they had agreed with Japanese steelmakers on price rises of up to 240 percent over 2007 levels for coking coal used in steelmaking.
JFE said it would delay announcing a forecast until July, when it reports first-quarter results. JFE also said it plans to increase capital spending by 36 percent to 265 billion yen in the year ending March 2009 as part of its plans to expand production capacity. Shares in JFE fell 22 percent in January-March, in line with the subindex. Shares in Nippon Steel, which is due to report its annual results on Friday, fell 27 percent.