Japan’s top steelmaker cedes crown to Arcelor as yen soars

Bloomberg

Japan’s biggest steelmaker is top of the pile no more, as a resurgent yen hands a competitive advantage to overseas rivals amid an unprecedented global glut.
Nippon Steel & Sumitomo Metal Corp. has been overtaken as the world’s most valuable producer by Europe’s ArcelorMittal and is neck and neck with a revitalized Posco in South Korea for second place. In China, meanwhile, signs are emerging that the government is set to combine its biggest mills into two national champions, each far surpassing Nippon Steel in terms of output.
The biggest steelmakers in Japan, including Nippon Steel and JFE Holdings Inc., will increasingly have to look for opportunities overseas as the population shrinks and the economy stagnates in a home market that they’ve long dominated. The yen’s rapid appreciation has hurt them in export markets where they draw more than a third of their sales. JFE’s Chief Executive Officer Eiji Hayashida has said the company needs to seek foreign deals to thrive beyond the construction boom planned for the 2020 Tokyo Olympics.
“The currency is the defining factor showing the contrast between mills in Japan and overseas,” said Yoku Ihara, president of Growth & Value Stock Research of Japan. “When international prices dropped, a weaker yen helped domestic steelmakers counter the impact. Now, a stronger yen and low prices are a double-whammy.”
The yen is the best performing major currency this year with a gain of 19 percent against the dollar and Japan’s top mills last week posted quarterly losses and warned of deteriorating conditions. Luxembourg-based ArcelorMittal, meanwhile, reported its best quarter since 2014, while Posco saw profit rise 47 percent as it rode a recovery in steel prices and a weakening in the won. Nippon Steel traded 0.5 percent higher at 1,913 yen as of 10:28 a.m. in Tokyo. The Japanese producer has fallen 21 percent this year, while Arcelor has surged 86 percent and Posco has advanced 31 percent over the period.