JFE may cancel Brazil, Vietnam projects

TOKYO, Nov 11 (Reuters) – Japan’s JFE Steel Corp, the world’s third-biggest steelmaker, said on Tuesday it may cancel or suspend two projects worth a combined $10-12 billion to build integrated steel mills in Brazil and Vietnam if demand remains weak.
Hajime Bada, president and chief executive officer at the core steel unit of JFE Holdings Inc, said the company was cautiously assessing the feasibility of the two projects now that steady growth in demand for steel is unlikely amid global recession fears.
“If demand is shrinking and we find the projects are not feasible, we could cancel or suspend the plans,” Bada told Reuters in an interview.
“We shouldn’t make the wrong decision on the timing of the investment,” he said, adding that he expects the trough of the economy to be deep.
Bada’s remarks come as the world’s big steelmakers, including No.1 ArcelorMittal SA and many Chinese mills, are scaling back production in response to contracting demand and plunging prices.
ArcelorMittal froze its expansion plans as turmoil in financial markets tears into the real economy.
Shares of JFE finished down 2.4 percent at 2,620 yen, outperforming the iron and steel subindex’s ISTEL.3.7 percent fall.
JFE, Brazilian miner Vale and South Korean steelmaker Dongkuk have been studying since April the possible construction of blast furnaces and a plant capable of producing 5-6 million tonnes a year of steel slab in Brazil’s northeastern Ceara state.
JFE also recently began a feasibility study on an integrated steel mill plant in the central province of Quang Ngai in Vietnam, with an annual capacity of 5 million tonnes.
Bada said JFE would take a majority stake in both projects, each worth about $5 billion to $6 billion, if they go ahead.
He said demand for JFE’s steel — sold mostly under long-term contracts to carmakers, shipbuilders and other machinery makers in Japan and Asia — was weakening but he couldn’t see how far demand would fall after January.
“We’ll closely watch the level of inventories and cut output,” he said.
A rapid slowdown in sales by Japanese carmakers, its key users of high-grade steel, will force JFE to cut output of automotive sheet steel by more than 10 percent in the October-March second half from the previous six months, Bada said.
“Toyota’s big cuts to its sales and earnings forecasts last week were something we hadn’t expected,” Bada said.
Toyota Motor Corp more than halved its profit forecasts, saying annual net earnings would plunge to a nine-year low as the financial crisis batters demand for its cars.
The impact of the global credit crisis is spread to emerging markets such as China and India, throwing a wrench in automakers’ and steelmakers’ plans to seek growth there to offset slumping sales in matured economies.
JFE said last month it plans to reduce output by 3 percent in the second half, centring on stainless steel and construction materials.
Analysts expect JFE to post a record pretax recurring profit of 535.78 billion yen in the year through March on price hikes under annual contracts and lower freight, scrap and other costs. But they see profit plunging more than 20 percent to 423.28 billion yen in the following year, Reuters Estimates data shows. (Editing by Chris Gallagher)



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