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Japan steelmakers Q1 profits slump on weaker global demand amid trade war

Kitco News

* JFE, Kobe Steel cut annual profit forecasts
* Nippon Steel predicts 56% fall in FY profit
* Overseas markets weaken, higher costs weigh
By Yuka Obayashi TOKYO, Aug 9 (Reuters) - Slowing global steel demand for automobiles and machinery amid a prolonged U.S.-China trade war and higher raw materials costs have battered Japanese steelmakers' quarterly earnings, forcing them to cut their annual forecasts or give bleak guidance.

"Overseas steel markets have weakened due to the U.S.-China trade row," Masashi Terahata, executive vice president at JFE Holdings Inc , Japan's second-biggest steelmaker, said on Friday.

"Higher supplies from Russia, Turkey and China to Southeast Asia have also weighed on steel prices in the region," he said. JFE's business profit, which is operating profit excluding one-off gains or losses, tanked 63% in the April-June quarter.

Nippon Steel Corp , Japan's top steelmaker, last week reported a 33% drop in business profit, and third-ranked Kobe Steel Ltd booked a recurring loss of 519 million yen ($4.9 million).

Nippon Steel Executive Vice President Katsuhiro Miyamoto also said steel markets have fallen due to weaker demand, hit by the prolonged U.S.-China trade war, while iron ore prices have rallied on the back of China's economic stimulus.

"This is a new form of China risk," he said, referring to the rise in value of the steelmaking raw material while steel prices are falling.

Hot-rolled steel , used in cars and home appliances, has sunk 12% on the Shanghai Futures Exchange from a recent peak on July 1, while construction steel rebar has slid 15%.

Meanwhile, iron ore futures on the Dalian Commodity Exchange hit their highest in more than five years last week due to reduced output following a Vale dam accident in Brazil and a cyclone in Australia, though they have since tumbled 20 percent.

Faced also with built-up steel inventories at home partly from higher imports earlier this year, JFE cut its annual crude steel output plan to 28 million tonnes from its May forecast of 29 million tonnes.

"We'll adjust our output to meet slowing demand," Terahata said.

With mounting worries over slowing global demand, JFE cut its annual profit forecast by 22 percent to 140 billion yen ($1.32 billion), which would be a 40% decline from a year earlier. Kobe Steel lowered its profit estimate by 67% to 10 billion yen, which would be a 71 percent plunge year-on-year. Nippon Steel, which gave no guidance in May, predicted a 56% dip in business profit for the year through March 2020. Japanese companies are not the only ones feeling pain. The world's biggest steelmaker ArcelorMittal reported a second-quarter core profit (EBITDA) of $1.56 billion, only about half its earnings of a year earlier.

South Korean steelmaker POSCO posted a 15% slide in second-quarter operating profit. ($1 = 105.7900 yen) (Reporting by Yuka Obayashi; Editing By Tom Hogue)

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