October 07, 2008

JFE profit drops 13% as costs outpace price increases

JFE Holdings Inc, the world's third largest steelmaker, posted a 13% drop in full year profit as raw material costs rose faster than it increased product prices.

JFE in a statement said that its net income sank to JPY 261.8 billion (USD 2.5 billion) in the year ended March 31st 2008 as compared with JPY 299.7 billion a year earlier. JFE Holding wouldn't forecast profit for this year until price talks with customers were finished.

JFE, along with bigger rival Nippon Steel Corp is paying at least 65% more for iron ore this year, while prices for coking coal have tripled to record highs. The increases, driven by rising demand in China and limited mining capacity, come as slower US economic growth may prevent carmakers and other steel buyers from passing on costs.

Mr Toshiyuki Johno an analyst at Nikko Citigroup Ltd in Tokyo said that “They can't be too confident about the outcome of price negotiations with carmakers and other companies. Profit will probably be flat this year once the price increases come through in the second half.''