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By Yuka Obayashi
TOKYO, Jan 29 (Reuters) - Nippon Steel & Sumitomo Metal Corp said on Thursday it took a 68.6 billion yen ($583 million) charge in the April-December period as a slump in oil prices was hurting profits at its pipe affiliate in Brazil.
Japan’s biggest steelmaker, which also supplies steel pipes to oil and gas companies globally, expects the drop in oil to have a negative impact on its earnings for the next business year starting in April, an executive said.
“We don’t expect a major impact from lower oil prices this business year but we may see a negative effect on new orders and output of steel pipes in the next business year,”
Executive Vice President Katsuhiko Ota told a news conference on its earnings.
“If oil prices stay below $50, orders for pipes will be held back. We need to cope with the changes carefully,” he said.
Global oil prices have tumbled almost 60 percent since June, forcing a number of oil and gas companies to scale back capital spending plans for 2015.
United States Steel Corp said this month it would idle plants in Illinois and Indiana due to weak demand from the oil industry, resulting in the layoff of 545 people.
Nippon Steel took the charge on Vallourec & Sumitomo Tubos do Brasil (VSB), its joint venture with France’s Vallourec , which holds a 56 percent stake. Nippon Steel owns 40.4 percent while Sumitomo Corp has 3.6 percent.
Ota said Nippon Steel was taking an impairment loss equivalent to 80-90 percent of the book value of VSB at the time of its investment in 2007.
The joint venture, which can produce 600,000 tonnes of seamless pipes a year, is currently operating at about a 60-70 percent utilisation rate and has been making a loss, according to Nippon Steel.
Nippon Steel, the world’s second-biggest steelmaker, raised its forecast for recurring profit in the year ending March 31 to 410 billion yen ($3.48 billion) from 400 billion, citing a higher margin in its mainstay steel business.
That is in line with the 411 billion yen mean estimate from 18 analysts polled by Thomson Reuters and compares with 361 billion yen a year earlier.
The Tokyo-based company also reported a 21.6 percent gain in recurrent profit for the April-December period.
The global steel industry is struggling with over-capacity and sluggish demand in China, the world’s biggest producer and consumer of steel, as economic growth there slows.
But Japanese steelmakers have managed to maintain healthy profits, helped by falling iron ore prices and sound domestic steel demand as well as a drop in the yen over the past two years, which has pushed up margins on exports. ($1 = 117.6500 yen) (Additional reporting by Tokyo Newsroom; Editing by Alan Raybould)