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Japan's steelmakers face construction project delays

Reuters reported that Japan's steelmakers are cautious about the outlook for profit growth this year due to weak export markets and delays in construction projects that has affected domestic demand for steel.

The big steel companies, which reported quarterly earnings this week, had been expected to benefit from the Japanese government's stimulus spending and rebuilding of areas devastated by an earthquake and tsunami in 2011.

But Prime Minister Mr Shinzo Abe's commitment to rebuild aging infrastructure and revitalise Japan has come up against labour shortages that have driven up costs and delayed building projects. And Asian export markets have been hit by a prolonged price slump due to China's massive crude steel output.

Japan's steel product demand for buildings fell to 3.84 million tonnes in April June from 4.04 million tonnes a year earlier after a sales tax hike from April cut purchases and the shortage of construction workers delayed some projects.

Mr Shinichi Okada VP of JFE Holdings Inc said that "Thanks to the government's (revitalisation) plan for infrastructure and rebuilding of northeastern regions from the 2011 earthquake, construction demand is strong, but actual works have been delayed due to labour shortage.”

Japan's top two steelmakers, Nippon Steel & Sumitomo Metal Corporation and JFE, forecast higher earnings for the year but these were lower than analysts had expected.

Nippon Steel, the world's No.2 steelmaker, forecast a group recurring profit of JPY 400 billion for this business year, up 11% from a year ago but below a consensus estimate of 428 billion in a poll of 17 analysts in Thomson Reuters I/B/E/S.

JFE's forecast at JPY 180 billion which is up from 174 billion a year ago, came below a consensus estimate of 201 billion in a poll of 15 analysts. Kobe Steel Limited Japan's No.3 steelmaker, also missed analysts consensus. Nippon Steel reported a 14% drop in recurring profit for the April to June quarter and JFE posted a 1.5% decline while Kobe reported a 26% gain.

Mr Katsuhiko Ota executive vice president of Nippon Steel said that "We think an overall impact from a sales tax hike came within our expectation, but some macro figures suggest different pictures. So we'll be carefully watching consumer demand later this year.”

Source - Reuters