JFE : Presentation Material of Financial Results in Third Quarter of Fiscal Year 2019 ending March 31, 2020

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Segment profit through third quarter of 2019 was 11.3 billion yen, decreased by 151.9 billion yen, compared to the previous year.

• Cost: +23.0 billion yen

Cost reduction: +12.0 billion yen: Cost effect of investment

One-off effect in FY2018: +11.0 billion yen

• Sales Volume and Mix: -12.0 billion yen

The volume of both crude steel production and shipment went down due to the production adjustment along with the decrease in steel demand and decline of the steel price in the overseas market.

• Crude steel (Standalone) -0.4Mt (20.43 ⇒ 20.03Mt)
• Shipment (Standalone) -0.9Mt (18.30 ⇒ 17.38Mt)

• Sales Prices and Raw materials (Metal spread): -73.0billion yen(-4,200yen/t-shipment)

Metal spread shrank mainly through increase in iron ore price and decrease in steel price in overseas market.

• Inventory valuation etc.: -48.0 billion yen
• Others: -41.9 billion yen

• Increase in sub materials, logistics, and outsourcing costs
• Decrease in profit of subsidiary companies
• Increase in depreciation cost with strengthening manufacturing capabilities etc.

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Combined inventories of HR, CR and Coated Steel as of the end of December 2019 were 4,314K tons.

From November 2019 : 21K tons decrease

From December 2018 : 142K tons increase

Although domestic steel makers are adjusting their production volume, weak domestic demand for steel and a certain amount of imported steel maintain the inventory level higher. It will take time for the inventory level to be returned to the appropriate level.

Production needs to be adjusted flexibly to meet the ongoing demand.

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[Inventories of Plate (Plate Shear)

Inventories of plate shear as of the end of November 2019 was 442K tons.

From October 2019 : 5K tons decrease

From November 2018: 67K tons increase

Although the inventory has been decreasing for three months, the inventory level remains high. Demand for the building and industrial machineries keeps sluggish, which leads the high inventory ratio.

[Inventories of Wide Flange Shapes]

Inventories of wide flange shapes as of the end of December 2019 was 191Ktons.

From November 2019 : 10.7K tons increase

From December 2018: 3.3K tons decrease

Since August 2019, the amount of inventory had kept decreasing at the level below 200kt until November. However, it reversed in December due to the low shipping.

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The volume of imported ordinary steel in December 2019 was 441K tons.

From November 2019: 29K tons decrease

From December 2018: 29K tons increase

A certain amount of steel has been imported continuously.

It will take time to for the domestic inventory level to be returned to the appropriate level.

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Crude steel production in December 2019 in China was 84.3M tons (2.7M tons on daily basis, which increased by 0.4Mt compared to the previous month.) The figures show the high production quantity in China consecutively.

From November 2019: 4.0M tons increase

From December 2018: 8.2M tons increase (+11.6%)

The annual crude steel production in 2019 was 996.3 M tons (on a preliminary basis), recording the highest mark in history for the third consecutive year.

Export of steel from China in December 2019 was 4.7M tons.

From November 2019: 0.1M tons increase

From December 2018: 0.9M tons decrease

The annual export of steel from China in 2019 was 64.3M tons.

From 2018: 5.0M tons decrease (-7.3%)

Export of steel from China remains low and has declined for 4 consecutive years. The declining tendency of steel sheets exports has become stronger since last autumn when the international steel market price dropped significantly.

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Inventories in China as of the end of January 2020 was 8.3M tons. From December 2019: 7.2% increase

From January 2019: 26.1% decrease

Inventories in China rebounded from a bottom in November, and after that, they show the signs of gradual recovery. After the beginning of 2020, the inventory level increased for preparation for the Chinese New Year, as the seasonal pattern. Since the inventory level turned into increasing, it should be monitored cautiously.

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Metal spread, calculated based on Chinese spot market price of HRC and international spot market prices of iron ore and hard coking coal, dropped below $150/t in the first half of FY2019 due to the decrease of the HRC price and the rise of the iron ore price.

Afterwards, metal spread rebounded in the second half of FY2019 due to decrease of the raw material price. The steel price has shown the signs of recovery after November, and the metal spread currently remains around $200/t.

It is necessary to watch cautiously how long the recovering steel price will keep increasing after finishing Chinese New Year.

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Segment profit forecast for FY2019 remains largely in line with the previous forecast.

• Cost: -5.0 billion yen

Cost increased due to the significant reduction in production and the impacts from natural disasters such as a typhoon.

• Sales Volume and Mix: ±0.0 billion yen

The volume of crude steel production is forecasted largely to be in line with its previous forecast, 27.0M tons.

• Sales Prices and Raw materials (Metal spread): +10.0 billion yen(+420 yen/t-shipment) Metal spread improved mainly through drop in raw material price.
• Inventory valuation etc.: -6.0 billion yen
• Others: +1.0 billion yen

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Segment profit forecast for FY2019 is 0 billion yen, decreasing by 161.3 billion yen year on year.

• Cost: +45.0 billion yen

Cost reduction: +23.0 billion yen: Cost effects of investment

One-off effect in FY2018: +22.0 billion yen

• Sales Volume and Mix: ±0.0 billion yen

Crude steel (Standalone) +0.69Mt (26.31 ⇒ 27.00Mt)

• Sales Prices and Raw materials (Metal spread): -86.0billion yen(-3,600yen/t-shipment)

Metal spread is expected to shrink with price down of steel in the overseas market due to escalating trade friction between the US and China.

• Inventory valuation etc.: -68.0 billion yen
• Sub materials cost etc.: -15.0 billion yen

・Sub materials : -5.0 billion yen ・Logistics : -4.0 billion yen ・Outsourcing : -5.0 billion yen

• Others: -37.3 billion yen

• Decrease in profit of subsidiary companies
• Increase in depreciation and loss of disposal asset cost with strengthening manufacturing capabilities

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Segment profit for 3Q of FY2019 was -6.4 billion yen, decreasing by 9.6 billion yen from 2Q of FY2019.

• Cost: ±0.0 billion yen
• Sales Volume and Mix: -7.0 billion yen

The volume of both crude steel production and shipment went down due to the production adjustment along with the decrease in both domestic and overseas demand and the decline of price in the overseas market.

• Crude steel (Standalone) -0.54Mt (6.79 ⇒ 6.24Mt)
• Shipment(Standalone) -0.36Mt (5.96 ⇒ 5.59Mt)

• Sales Prices and Raw materials (Metal spread): +1.0 billion yen(+180 yen/t-shipment)

Metal spread improved due to the decrease in raw material price though the price in the overseas market dropped and the iron ore price increased.

• Inventory valuation etc.: -19.0 billion yen
• Others: +15.4 billion yen

• Decrease in the loss of asset disposal
• Increase in dividends received etc.

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Segment profit forecast for 2H of FY2019 is -17.7 billion yen, decreasing by 35.4 billion yen from 2Q of FY2019.

• Cost: +9.0 billion yen

Cost reduction of +9.0 billion yen is estimated as a result of the cost effects of investments in West Japan works etc., including cost increase due to the impact from typhoons and the significant reduction in production.

• Sales Volume and Mix: -10.0 billion yen

Crude steel production is estimated to decrease with the fall of both domestic and overseas steel demand and sluggish steel price in overseas market.

• Crude steel (Standalone) -0.57Mt (13.79 ⇒ 13.21Mt)

• Sales Prices and Raw materials (Metal spread): -4.0billion yen(-330yen/t-shipment)

Metal spread is expected to shrink due to the decrease of the steel price in overseas market and the high iron ore price while the coke price is estimated to drop significantly.

• Inventory valuation etc.: -23.0 billion yen
• Others: -7.4 billion yen

• Increase in depreciation cost with strengthening manufacturing capabilities etc.

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Segment profit forecast for 4Q of FY2019 is -11.3 billion yen, decreasing by 4.9 billion yen from 3Q of FY2019.

• Cost: +10.0 billion yen

Cost effects of investments in West Japan works etc.

• Sales Volume and Mix: +10.0 billion yen

Crude steel production is estimated to recover in 4Q as a result of the rebound of steel price in overseas market.

• Crude steel (Standalone) +0.73Mt (6.24 ⇒ 6.97Mt)
• Shipment (Standalone) +0.83Mt (5.59 ⇒ 6.42Mt)

• Sales Prices and Raw materials (Metal spread): +1.0 billion yen(+160 yen/t-shipment)

Metal spread is expected to improve due to the drop in iron ore price and the recovery of the steel price in the overseas market.

• Inventory valuation etc.: +3.0 billion yen
• Others: -28.9 billion yen

• Decrease in profit of subsidiary companies

• Increase in loss of disposal asset etc.

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