JFE Group to Start Mid-Term Plan in F2012 for New Growth Path

JFE Holdings tries to make next growth path under 4 mid-term plan starting April 2012. The vice president Yoshio Ishikawa said the firm should regain the competitiveness with severe crisis mentality as middle of fateful crisis to survive. He said Japanese steel makers face major challenges when domestic users shift the operation to offshore plants under high yen rate and the major earth quake damage and Asian steel market is middle of confusion with aggressive production and export by Chinese and South Korean makers while higher iron ore and coal cost and shorter pricing squeeze world steel makers’ profitability. Mr. Ishikawa said the firm would keep seeking 10% of consolidated recurring profit rate on sales in the new plan through better profitability of core business of steel.

JFE Holdings controls 100% of JFE Shoji Trade, which is equity method affiliate of JFE Steel. Mr. Ishikawa said the holding company tries to utilize JFE Shoji Trade’s marketing function and knowhow on offshore business for whole group while JFE Shoji Trade contributes to better supply chain for steel unit. He emphasized integrated steel maker’s cost will be better especially for chain after mill FOB. The group expects the new structure will be one of keys for better profitability of the steel business while the trading company will contribute to group’s consolidated profit.

The group will consolidate the group’s 4 electric furnace steel makers in April 2012. Mr. Ishikawa said the merged company will seek synergy in further cooperation with JFE Steel in shapes and structural steel and procurement.

JFE Holdings posted more than 60 billion yen of valuation loss on shareholding in JSW Steel of India. Mr. Ishikawa said the firm will keep seeking further cooperation with JSW Steel despite of the loss. The firm would increase the shareholding from current 14.99% through talk with JSW Steel when Indian regulation allows near 25% shareholding without takeover bid while the regulation obligated takeover bid for shareholders with 15% or more share. Mr. Ishikawa said With JSW Steel, JFE Holdings seeks various joint works including technology transfer on automotive flat steel and potential integrated steel joint venture.

Mr. Ishikawa said the firm plans 170 billion yen of capital expenditure or less than depreciation in fiscal 2011 when JFE Steel already finished major investment projects. He said the group will seek investment opportunity in raw materials equity and steel business depending on the conditions and growth potential.

The firm revised the consolidated recurring profit target downward to 100 billion yen for fiscal 2011 ending March 2012, which is 30 billion yen lower than target as of July and 40% lower than fiscal 2010 level. Mr. Ishikawa said JFE Steel’s profit will be 80 billion yen while the firm expected 120 billion yen. The steel unit’s lower profit is the main reason for the target revision while the holding company revised the profit upward by 4 billion yen for JFE Engineering and by 3 billion yen for Universal Shipbuilding. The engineering unit will post 14 billion yen of profit compared with 12.2 billion yen in fiscal 2010 due to cost cutting for each project and higher sales for major projects and rebuilding after the major earthquake. The shipbuilding unit will post 7.5 billion yen of profit compared with 17.1 billion yen in fiscal 2010 due to higher yen rate and negative impact from loss provision for orders.