April 28, 2016 / 12:53 PM / 2 years ago

UPDATE 1-Nippon Steel sees Asian steel prices' rapid rise as unsustainable

* No sign of strong pick-up in China demand-Nippon Steel

* Nippon Steel’s FY15/16 steel output dips 6 pct

* JEF eyes small rise in FY16/17 production to 28 mln T (Adds quotes, earnings and Usiminas comments)

By Yuka Obayashi

TOKYO, April 28 (Reuters) - Nippon Steel & Sumitomo Metal Corp, the world’s second-largest steelmaker, expects the rapid rise in Asian steel prices is unsustainable given the increase in China’s steel output and exports in March, an executive said on Thursday.

The global steel industry has been struggling with overcapacity and sluggish demand in the world’s top buyer, China.

China’s steel prices have surged 45 percent so far this year, fuelled by tighter supply due to shutdowns in the past year, but industry officials have raised doubts that the rally will continue.

“There is no clear sign of a strong pick-up in China’s local demand,” Nippon Steel Executive Vice President Toshiharu Sakae told a news conference. “We don’t expect run-up to continue at the recent pace.”

China’s steel production hit a record high of 70.65 million tonnes in March, amounting to 834 million tonnes on an annualised basis.

“It’s hard to think the prices keep rising this fast amid supply glut,” Shinichi Okada, Executive Vice President at JFE Holdings, Japan’s No.2 steel maker, said this week.

Hurt by falling export margins, Nippon Steel reported a 56 percent drop in its 2015/16 recurring profit, which is pre-tax before one-off items. It did not provide forecasts for this year.

JFE’s profit also plunged 72 percent for the year just ended and it predicted flat growth this year.

Weak domestic demand for vehicles and houses, along with a tough export environment have forced Japanese steelmakers to cut production.

Nippon Steel slashed 2015/16 output by 6 percent to 42.17 million tonnes, the lowest in six years, while JFE lowered its output by 4 percent to 27.36 million tonnes.

But JFE forecast a small increase this year to 28 million tonnes. Nippon Steel provided no estimate.

“Our output remains slack this quarter, but it will improve in the October-March half, backed by the Tokyo Olympic-related projects and higher consumer spending,” Sakae said.

Brazilian steelmaker Usiminas is struggling with a rift between its shareholders Nippon Steel and Ternium, on top of fallout from Brazil’s worst recession in over a century.

Asked about Usiminas’ outlook, Sakae said its affiliate is now set to step up restructuring after its board approved a plan to raise fresh capital.

“Our aim is to bolster Usiminas’ earnings and financial strength by raising market share and selling assets,” he said.

As for its relationship with Ternium, Sakae said: “There have been discords in the past, but we now work in concert as you can see from our agreement on Usiminas’ finance plan. We are not worried at all.”

Reporting by Yuka Obayashi; Editing by Christian Schmollinger

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