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According to Reuters, the Japanese company Nippon Steel is preparing for downward risk, as the slowdown in production in China after the outbreak of the coronavirus may further affect demand in industries such as automobile manufacturing and mechanical engineering.
“We have not reduced crude steel production ... but we must be prepared to reduce it,” said Kippuhiro Miyamoto, executive vice president of Nippon Steel, in an interview last week with Reuters.
Miyamoto also said that inventories in China's steel mills were up 30% in early February from a year earlier, while stockpiles at Shanghai's Nippon Steel joint venture also increased due to interruptions in transportation.
“We can face wider consequences if industrial activity does not grow rapidly in China,” he said, adding that demand for steel in automobiles, industrial equipment and shipbuilding suffered from a weaker global economy before the outbreak.
Another concern is rising commodity prices, as coking coal prices are pressured by Mongolia's border closure, which supplies about 30% of the main steelmaking ingredient to China. “We can’t say what impact the epidemic will have, but we expect hard times to come during the first half (next fiscal year),” he said.
In February, Nippon Steel announced a plan to close almost 10% of its production capacity, and its profit forecast was also lowered. But the company is expected to return to profit next year due to lower depreciation and one-time payments for natural disasters, as well as lower costs, Miyamoto said.
