Nippon Steel Corp could buy more stakes in coking coal and iron ore mines even after its recent decision to invest in a Canadian mine, as it sees a risk of commodity prices staying high, an executive at the world’s No.4 steelmaker said.
Japan’s top steelmaker said in February it will spend around 1.15 billion Canadian dollars ($844 million) to buy a 10% stake in Elk Valley Resources Ltd (EVR), the coking coal unit to be spun off from Canadian miner Teck Resources Ltd.
Nippon Steel already owns stakes in several coking coal mines, procuring 20% of its annual 27 million tonne imports of the coal. The deal will boost that share to 30%.
But it may not be enough, as prices of key steel-making ingredients, including iron ore, could remain at high levels, executive vice president Takahiro Mori said this week.
“If a good mine goes up for sale, we will consider buying a stake,” Mori told Reuters in an interview, adding the search includes iron ore. The steelmaker now procures 20% of its 58 million tonnes of iron ore imports from its equity holdings.
Under the latest deal, to be completed in the April to March quarter, Nippon Steel has the right to raise its EVR stake to a maximum 17.5%.
“We aim to boost our stake to above 15% by around the middle of the next financial year to make it an affiliate,” Mori said, allowing it to incorporate some profits from the Canadian miner into its business profit.
Mori is cautiously upbeat on its earnings outlook for the next year starting in April.
“We expect a slight increase in our crude steel output after a slump this year, as automobile production will pick up after supply chain snags ease,” he said.
Thanks to a restructuring that included shutting down some blast furnaces, its marginal profit ratio has improved, he said, citing a 1 million-tonne increase in crude steel output that will boost its business profit by up to 50 billion yen ($366 million).
It steel output is forecast to fall 12% in the current year to 34.2 million tonnes.
Stronger earnings from overseas units including its Indian joint venture with ArcelorMittal and robust demand for its high-end seamless pipes used in energy projects will also contribute to a healthy profit next year, Mori said.
($1 = 1.3619 Canadian dollars)
($1 = 136.5500 yen)
(By Yuka Obayashi and Miho Uranaka; Editing by Jan Harvey)