By Yuka Obayashi and Ritsuko Shimizu
TOKYO (Reuters) – Nippon Steel Corp, the world’s No.5 steelmaker, expects its seamless pipe business will return to a profit this year from a loss last year as gas drilling activity is on the rise to meet higher demand for non-Russian fuel.
“We are getting an increasing number of inquiries for seamless pipes as demand for non-Russian gas is growing,” Takahiro Mori, executive vice president, told Reuters on Wednesday, citing the Middle East as an example of where demand is coming from.
“Our seamless pipe business will definitely turn to black ink this financial year as the weak yen also helps,” he said.
Japan’s leading steelmaker is among the world’s top makers of high-end seamless pipes used for drilling oil and gas.
The once highly-profitable business had been hit in recent years both by a slowdown in oil and gas exploration due governments’ ongoing campaigns to switch away from fossil fuels and the impact of the COVID-19 pandemic.
But the recent surge in demand and prices for gas, following Russia’s invasion of Ukraine, has spurred investment in production.
Nippon could also find increased sales opportunities as a result of Russia and Ukraine being unable to export as much pig iron and semi-finished steel products, Mori said, before adding a cautionary note.
“Even if there are positive aspects in supply, the negative aspects in demand and raw materials prices are far outweighing them,” he said.
Nippon Steel has reported a net profit of 637 billion yen ($5 billion) for the year ended March 31, the highest since its acquisition of Sumitomo Metal Industries in 2012.
The strong performance stemmed from demand improving after a slump caused by the pandemic, and from Nippon Steel’s ability to pass on soaring materials costs to key customers such as automakers.
Nippon Steel did not provide a forecast for this year, but Mori said it aims to generate at least 600 billion yen in business profit without one-off factors, against 690 billion yen a year earlier, while also seeking to raise product prices by 30,000-40,000 yen ($236-$315) a tonne to cushion soaring costs.
The biggest risk for Nippon Steel, Mori said, would be if raw material prices kept rising while the steel market stagnated.
However, he expected the steel market to improve, and noted that Chinese steel mills were unprofitable at current prices for steel.
“Global steel demand in 2022 will likely remain flat from last year, but we are not pessimistic as we see growth prospects in our main battlegrounds like India and the United States,” Mori said.
($1 = 126.9000 yen)
(Reporting by Yuka Obayashi; Editing by Simon Cameron-Moore)