Nippon Steel Aims to Acquire Additional Coking Coal and Iron Ore Assets

Nippon Steel, the fourth-largest steelmaker globally, remains committed to actively seeking stakes in coking coal and iron ore mines as part of its strategic approach to securing a stable supply of crucial raw materials and mitigating the potential impacts of price fluctuations.

In a recent significant development, Nippon Steel, in collaboration with a consortium led by Glencore, finalized one of the mining sector's largest deals in years. The consortium, which includes Nippon Steel, agreed to acquire the steelmaking coal unit of Canadian miner Teck Resources for a substantial $9 billion. Within this deal, Nippon Steel is set to invest approximately $1.34 billion for a 20% stake in the venture.

Highlighting the rationale behind the continued pursuit of such investments, Executive Vice President Takahiro Mori emphasized the anticipation of a rise in coking coal prices due to tightening supply in the medium term. He attributed this tightening to limited investments in mines driven by the push for carbon neutrality. Mori asserted the critical importance of securing the company's interests in the face of evolving market dynamics.

Nippon Steel, as Japan's premier steelmaker, already holds stakes in several coking coal mines, constituting about one-fifth of its annual coal imports, which total 25 million metric tons. The Teck Resources deal is poised to further increase Nippon Steel's share to around 30%. While approximately 60% of the company's products are sold to term customers with pricing mechanisms linked to raw material costs, the remaining 40% are commodity products susceptible to market fluctuations. Mori expressed the strategic objective of enhancing self-sufficiency to approximately 40%, encompassing both coal and iron ore, to mitigate the impact of raw material price fluctuations on market products.

Currently, Nippon Steel sources 20% of its 50 million tons of iron ore imports from its equity holdings. The recently acquired 20% stake in Teck's coking coal business is anticipated to contribute significantly to Nippon Steel's annual profit, with an estimated boost of about $476-543 million based on prevailing prices.

In early announcements this month, Nippon Steel raised its net profit forecast by 11% to 420 billion yen for the fiscal year ending in March. This positive adjustment was attributed to improved margins in the first half of the year. Notably, the company's profit from overseas operations received an unusual boost from a substantial special gain arising from its Indian joint venture with ArcelorMittal. This joint venture employs natural gas, instead of coking coal, for steel production. Despite being a one-off gain, Mori clarified that the unit would continue to hedge LNG prices through long-term contracts to mitigate the risks associated with price volatility.

Nippon Steel's proactive pursuit of stakes in coking coal and iron ore mines reflects a strategic imperative to fortify its raw material supply chain and navigate the evolving landscape of market dynamics, contributing to the company's overall resilience and competitiveness in the steel industry.