Nippon Steel is seeking more merger and acquisition (M&A) opportunities to boost its global output capacity to 100 million tonnes, an executive said on Thursday, after its recent decision to buy two Thai steelmakers.
Overseas steel markets are expected to recover after the lunar new year holiday and the Beijing Winter Olympics, Takahiro Mori, executive vice-president Japan’s top steelmaker told an earnings news conference.
That would reflect the higher prices of raw materials and an expected economic stimulus by the Chinese government.
Spot steel margins in China had already halved from the highs as prices remain depressed from weak end-demand and spreads are squeezed by rising iron ore, coking coal, and alloy prices.
“This will have ramifications for Japanese steelmakers,” Thanh Ha Pham, equity analyst at Jefferies in Tokyo, said.
Dividends Would Be Cut
“We estimate that top-line earnings for the Japanese steelmakers would drop by 23-48% on a year-on-year basis in fiscal 2023. Accordingly, we’d expect dividends to be cut as well.”
Nippon Steel estimates that it needs 4-5 trillion yen ($39 billion) to achieve carbon neutrality. “This leaves limited resources for shareholder returns,” Thanh said.
Last month, Nippon Steel said it would buy two electric arc furnace steelmakers in Thailand in a deal worth up to $763 million, as it seeks to cut its reliance on blast furnaces that use coking coal and emit carbon dioxide.
The deal on Friday by Japan’s biggest steelmaker is also aimed at securing iron-making bases in a growing market and expanding overseas business to offset falling demand in its home market, with its ageing and falling population.
“Our aim is to become an insider as a local integrated steel mill in Thailand and capture growing demand for hot-rolled steel sheets,” Mori said.
- Reuters, with additional editing by George Russell
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