Nippon Denko Enters Output and Cost Cuts in All Factories

Nippon Denko, Japanese major ferroalloy maker, launched output and cost cut measures such as extra closing of its plants for the first time in 8 and half years. The firm closes all factories temporarily for 3-10 days per month during February and March. The output of high-carbon ferromanganese is now reduced by 30% compared with the capacity. The firm already applied for Employment Adjustment Subsidy and reduced board members’ compensation in February. The firm also minimizes capital expenditure except for strategic plans such as capacity expansion for high carbon ferromanganese and new factory construction of manganese acid lithium.

Nippon Denko prepares for low operation with estimation that domestic crude steel output becomes below 100 million tonnes in 2009. The firm will continue output reduction for high carbon ferromanganese by 30% for a while.

Offshore subsidiaries are also decreasing output. Chinese subsidiary is decreasing silicon manganese production. In South Africa, NST Ferrochrome stopped ferrochrome production in December 2008. SAJ Vanadium, another joint venture in south Africa, is reducing vanadium output.

Nippon Denko will shrink annual capital expenditure to 4 billion yen for 2009, down by 300 million yen from 2008. The firm plans investment at over 2 billion yen for construction of a new manganese acid lithium factory. The firm will also expand no.1 furnace of high carbon ferromanganese. But additional large expenditures will be postponed, including capacity expansion of super low phosphorus ferromanganese to 45,000 tonnes per year from current 30,000 tonnes.

Nippon Denko announced on Tuesday the firm posted the record consolidated recurring profit at 25.2 billion yen for a full year ending December 2008, expanding by 2.3 times from previous year. The consolidated revenue increased by 1.5 times to 116 billion yen through 2008 from 2007, reaching 100 billion yen for the first time thanks to upsurge of ferroalloy selling price. However, the firm forecasts the recurring profit would drop by 91% to 2.2 billion yen in 2009 from 2008 with rapid demand shrinkage and ferroalloy price down.

Yoichiro Miura, the president, forecasts the profit could return to the normal level in 2010 after ferroalloy market recovers the balance. Mr. Miura estimated the firm’s actual ability at 13 billion yen of full-year consolidated recurring profit.