Japan's Big 3 Steelmakers Q1 FY2027: Nippon Steel rebounds as Kobe Steel struggles

Combined revenue for the three companies increased from a year earlier, but profit growth varied. Improvements in steel demand and prices, alongside prior-year one-off losses and inventory valuation effects, widened the gap.

• A recovery in demand and prices boosted Nippon Steel's revenue, up 40.4% year on year. That outpaced JFE's 4.1% growth and Kobe Steel's 1.6% increase.
• The prior-year comparison shaped the profit picture. Nippon Steel returned to profit after posting a loss due to restructuring costs a year earlier.
• Inventory valuation effects lifted JFE's earnings. Its inventory valuation difference improved by ¥36 billion from a year earlier, while better operations also contributed.
• Differences in business mix separated the winners and laggards. Kobe Steel's steel and aluminum business was in the red, while its non-steel businesses supported the overall result.

The winner this quarter was Nippon Steel, which led in both revenue scale and operating margin. Operating profit was ¥145.5 billion, for a margin of 5.2%. That topped JFE's ¥47.4 billion and 4.1%, and Kobe Steel's ¥20.4 billion and 3.5%. Nippon Steel led on both scale and margin.

Nippon Steel also ranked first in revenue, at ¥2.8212 trillion, well ahead of JFE at ¥1.1612 trillion and Kobe Steel at ¥578.3 billion. Net income returned to a profit of ¥75.3 billion after a large loss in the year-earlier quarter.

Kobe Steel had the toughest quarter. Revenue rose 1.6% year on year, but operating profit fell 34.8% and net income dropped 68.4%. The steel and aluminum business was in the red, while the absence of securities-sale gains recorded a year earlier also weighed on results.

JFE's net income rebounded 338.1% to ¥31.2 billion year on year. However, improved inventory valuation effects contributed to the gain. The supplied data lists JFE's operating profit as ¥47.4 billion in the comparison table, but gives business profit of ¥32.3 billion in the detailed section. The difference in definitions or aggregation cannot be verified, so the rankings use the comparison-table figures and direct comparisons should be treated with caution.

The companies' results reflect different sources of earnings. The supplied data does not detail any new M&A or major investment plans.

• Nippon Steel benefited from recovering steel demand and improved prices. It posted an operating loss in the year-earlier quarter due in part to restructuring costs at its U.S. business, making the comparison partly reflect that rebound. Its full-year operating profit forecast is ¥630 billion.
• JFE is counting on improved inventory valuation effects and operational gains. Its full-year operating profit forecast of ¥215 billion is above Kobe Steel's ¥150 billion. Its business in India is also worth watching, though the data does not specify its contribution.
• Kobe Steel was supported by non-steel businesses as its steel and aluminum operations weakened. Its full-year operating profit forecast is ¥150 billion. A key question is how much it can turn a recovery in demand in the second half into actual results after the first-quarter decline.

A return to profit or higher earnings alone does not establish how stable a company's earnings are. Investors need to distinguish external conditions from the underlying sources of profit.

• A slowdown in overseas economies could weaken steel demand and halt a recovery in sales volumes or prices.
• Fluctuations in raw material and steel prices affect margins. Profits can contract if companies are slow to pass on higher costs.
• Inventory valuation swings can significantly move quarterly earnings, as seen at JFE. Underlying earning power excluding these effects also merits scrutiny.
• Currency moves and electricity costs are additional concerns. At Kobe Steel, lower profit from its power business has been cited as a risk.
• The burden of capital spending and decarbonization will continue. Companies must preserve price competitiveness and financial health while investing.

The rankings for revenue, operating profit and operating margin were all the same: Nippon Steel, JFE, then Kobe Steel. The quarter brought no change at the top, but showed a widening gap in the strength of the recovery.

JFE led in year-on-year net income growth. Nippon Steel, however, moved from a loss to a profit, making a conventional year-on-year comparison impossible. Kobe Steel's net income declined in part because it did not repeat securities-sale gains from a year earlier. Growth rates alone do not provide a complete measure of a company's performance.

Even among major steelmakers, job stability and growth opportunities differ by business. At a diversified company such as Kobe Steel, non-steel operations can help support the overall business. For Nippon Steel and JFE, operational improvements and overseas business developments are also worth watching.

When choosing an employer, look beyond company-wide results to the earnings and investment plans of the business you are interested in. A company's ability to navigate economic cycles and raw material prices matters, as do opportunities to work on factory-floor improvements and decarbonization.