Price pass-through delays keep FY2027-H1 in the red, with execution of the second-half improvement plan the key focus

First-quarter sales in FY2027 were ¥72,927 million, down 1.3% from ¥73,862 million in the year-earlier quarter. Operating results, however, swung from a ¥4,767 million profit in the year-earlier quarter to a ¥2,307 million loss, while ordinary results were also a loss of ¥1,743 million. Despite no major decline in sales, the company became loss-making at the operating level, suggesting that the timing gap between selling prices and raw-material prices, rather than volume, determined profitability in the quarter.

According to the company, the main factor was a sharp rise in steel scrap prices amid heightened tensions in the Middle East, which pushed up raw-material purchase prices, while it took time for product price increases to be reflected in shipment prices. This is consistent with the company’s longstanding recognition that fluctuations in steel-market conditions and steel scrap prices directly affect earnings. In the past as well, the difference between increases in product shipment unit prices and steel scrap unit prices has determined margins. At the next results announcement, it will therefore be necessary to examine not simply whether price increases were implemented, but the actual gap between shipment unit prices and scrap purchase unit prices.

The revised outlook reported on 16 October raised the FY2027-H1 operating forecast from negative ¥4,000 million to negative ¥3,500 million and the full-year operating forecast from negative ¥4,000 million to positive ¥1,000 million. A return to full-year operating profitability is positive, but the first half remains loss-making even after the revision. Based on the first-quarter loss of ¥2,307 million, the second quarter alone is expected to post a loss of approximately ¥1,193 million. On this assumption, achieving a full-year profit of ¥1,000 million would require an operating profit of approximately ¥4,500 million in the second half.

Accordingly, the key issues for FY2027-H1 are not limited to the size of the loss. The company needs to use disclosures on volume, unit prices and raw-material prices to assess how much product shipment unit prices absorbed the first quarter’s cost increases, whether price increases have become established in actual selling prices, whether scrap prices have risen again, and whether the fixed-cost burden has eased as production volumes declined. If H1 operating results fall materially below negative ¥3,500 million, the assumptions for second-half profitability will remain exposed to the risk of further revisions.