Nippon Steel & Sumitomo Metal Corp, the world's No 2 steelmaker by output, could delay some of the investment plans it has set through 2018 as its annual fiscal profits may miss targets amid plunging metal prices, a senior executive said.
Japan's top steelmaker cut its profit guidance for the year through March 2016 at the end of last month, hit by a supply glut, weak orders for drill pipe due to slumping oil prices, and softer-than-expected domestic demand.
The global steel industry overall has been battered by record exports of cheap steel from China, which produces about 50 percent of the world's steel and where an economic slowdown has curtailed domestic use of the metal.
"We had expected a slump due to China's excessive output. But it came 2-3 years earlier and has been deeper than we had anticipated," Executive Vice President Katsuhiko Ota told Reuters in an interview last week.
"Our profit and cash flow for the next two years may fall below our targets under the mid-term business plan. To cover such a shortfall, we may need some adjustment in investment plans," he said. One option open to the Tokyo-based company would be to delay some parts of a plan to spend billions to upgrade and repair its domestic steel mills, Ota said.
In March this year, Nippon Steel unveiled a three-year business plan through March 2018 that included spending 1.35 trillion yen ($10.9 billion) to upgrade facilities in Japan to bolster its competitiveness.
Faced with softening demand at home due to ageing population, the Japanese steelmaker has been expanding its overseas operations to drive future growth through buying local steelmakers and building new plants.
Under the current business plan, Nippon Steel has set aside about 300 billion yen on expansion of overseas operations.
Ota said the company is still willing to invest if any "rare and attractive" assets come up for sale, but he added that there is nothing on the table at the moment. The steelmaker has built a series of processing plants overseas such as Thailand and India in recent years to meet growing local demand of automobile steel.
The new plants, however, are operating at slower pace than they had initially planned due to softer car demand, Ota said.
"We just need to wait for a recovery of local demand," he said.
Ota said his company supports the decision of Brazilian steelmaker Usiminas - nearly one-third owned by Nippon Steel - to temporarily shut its Cubatao plant near Sao Paulo as it posted a third-quarter net loss of 1.04 billion reais ($276 million) due to weak steel demand and low iron ore prices.