Kobe Steel to spend $900 mln to bolster aluminium supplies for cars, planes

Japan's Kobe Steel Ltd will spend 100 billion yen ($900 million) over the next five years to boost steel and aluminium supplies to automakers and aircraft manufacturers as it looks to drive growth and counter faltering demand in China.

Steel producers in high-cost countries say their best hope for surviving the global glut is to develop higher value specialised products although they will still face a tough time competing with low-cost Chinese producers.

Under a new five-year business plan announced on Tuesday and starting this month, the country's third-biggest steelmaker aims to bolster its recurring profit, pre-tax before one-off items, to 140 billion yen in the year through March 2021, against an estimated 25 billion yen in the year just ended.

In an effort to differentiate itself from rivals, the company, which also makes aluminium products, plans to widen its material supplies, both steel and aluminium, to help lighten vehicles and airplanes, it said.

"Demand to reduce weight of automobiles and planes will definitely increase as environmental regulations have been tightened globally," President Hiroya Kawasaki told a news conference.

"Our plan is to step up our supplies to Japanese automakers as well as European and the U.S. automakers in growth markets such as North America and China," he said. He declined to comment on details of its investment plan.

The Kobe-based company meanwhile, plans to cut its production capacity of construction machinery by 20 percent in five years to counter shrinking demand in China, it said.

Other financial goals for the 2020 year include a return on assets (ROA) of 5 percent, against an estimated 1.1 percent for the year just ended, and a debt-to-equity ratio of under 1. In February, its bigger peer Nippon Steel & Sumitomo Metal Corp said it would take control of fourth-ranked rival Nisshin Steel Co Ltd and shut one of Nisshin's two blast furnaces in the face of a global supply glut.

Asked if Kobe Steel would consider a consolidation, Kawasaki said: "We have no intention to merge (with another company) at all."

($1 = 110.6700 yen)

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