Business risks and other risks

Matters related to the status of the Group’s businesses and financial position that could have a significant impact on investors’ decisions are discussed below. As of the end of FY2012 (March 31, 2012), statements about the future are based on the judgment of Nippon Steel Corporation and Sumitomo Metal Industries.

(1) Fluctuations in the demand for and supply of steel

The majority of the Group’s sales come from the steel manufacturing business, and fluctuations in the international demand for or supply of steel could have an impact on earnings. In addition, at a time of fierce competition with competitors such as Japanese and foreign steel manufacturers, any changes in the Group’s competitiveness in terms of technology, cost, quality, or other aspects could have an impact on earnings.

Many customers of the company’s steel manufacturing business regularly purchase large volumes of steel assuming that they will process the steel into products, which they will then sell, or do something else with the steel. Changes in the purchasing policies of major customers could have an impact on earnings.

There are credit risks associated with parties such as trading companies and customers who purchase the company’s steel and other products. A default by one of these parties could have an impact on earnings.

(2) Fluctuations in the prices of raw materials and fuels

The prices of raw materials (such as iron ore, coal, alloys, and scrap), the price of raw fuels that are mainly used in the steel manufacturing business, and sea transport costs are linked to the international demand for and supply of resources. In the future, major fluctuations could occur in these prices due to shifts in the demand for or supply of raw materials for steel, which reflect factors such as economic conditions and steel production.

(3) Fluctuations in the interest rates of financial instruments (including bonds) and other fluctuations in financial markets

Interest rate conditions and fluctuations in financial markets could have an impact on earnings.

(4) Fluctuations in the value of assets held, such as marketable securities (including pension assets)

The Group could have to record valuation losses on investment securities because of weak earnings by companies invested in or declines in securities markets. In addition to marketable securities, the company has pension assets, including employee retirement benefit trust assets, and fluctuations in interest rates and the prices of financial products (such as Japanese and overseas stocks and bonds that form the pension assets) could have an impact on earnings.

(5) Fluctuations in foreign exchange markets

Many of the Group’s business transactions, including exporting items such as products and importing items such as raw materials, are denominated in foreign currencies. The Group also holds bonds and stocks denominated in foreign currencies. Therefore, fluctuations in foreign exchange markets could have an impact on earnings.

(6) Environmental regulations related to business activities

If regulations on the allowable amount of CO2 emissions or other environmental regulations are strengthened or introduced in Japan, this could have an impact on earnings due to constraints on the Group’s business activities, particularly the steel business.

(7) Higher duties and import restrictions in major overseas markets

The U.S. and other countries have imposed anti-dumping duties on some of the Group’s steel exports. If duties are raised, or if special duties (such as anti-dumping duties or other import restrictions, such as restrictions on amounts) are imposed in the future, earnings could be impacted due to constraints on exports.

(8) Major disasters, accidents, lawsuits, etc.

If a major typhoon, earthquake, or other natural disaster were to hit one of the Group’s business sites (steel plant, etc.) or customers, or if a contagious disease, such as new strain of influenza, were to suddenly spread throughout Japan, earnings could be impacted due to constraints on business activities. In addition, if a major work-related accident, equipment-related accident, environmental accident, quality problem, or similar incident were to occur, or if an unfavorable judgment were made against the company in a major lawsuit, earnings could be impacted due to suspension or constraints on business activities, compensation, or other reasons.


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