UBS Securities Raises Share Prices Target for Japan Steels

UBS Securities Japan raised the target share prices of Japanese major 4 steel makers. The new target is 1,000 yen per share for Nippon Steel, 9,000 yen for JFE Holdings, 690 yen for Sumitomo Metal Industries and 590 yen for Kobe Steel from previous 820 yen, 7,600 yen, 590 yen and 500 yen respectively. Nippon Steel’s target of 1,000 yen is higher than the record 984 yen in February 1989. The analyst Atsushi Yamaguchi said their share price will reach the targets when the market recognizes the better performance in announcement for April-June results. The firm revised the target just after the revision in February. Mr. Yamaguchi said the revision was due to firm export market, higher raw steel output and higher contract steel prices. The firm expected lower export price and lower raw steel output due to overproduction by China. However, the firm changed the market view and now expects the market would keep the favorable condition until September. The firm expects the hot coil export price is averaged FOB US$ 530 per tonne and raw steel output is annual 118 million tonnes for Japanese steel industry compared with previous forecast of US$ 500 and 116.5 million tonnes. The firm also revised the steel price outlook higher for automobile steel, special steel and domestic commodity items under higher zinc cost, tight supply and higher international market though the firm said the prices would keep the level before. Mr. Yamaguchi said Japanese steels’ depreciation could increase by 26-30% in fiscal 2007 starting April 2007 from fiscal 2006 under new depreciation system. However, he expects the accelerated depreciation could have positive impact for cash flow despite of the negative impact on periodical profit. Mr. Yamaguchi expects Japanese integrated steels keep increasing the profit through higher selling price, higher sales for high valued steel items and cost cutting despite of higher raw materials cost and higher capital expenditure.