Nippon Steel Corp. (5401), Japan’s largest steelmaker, returned to profit last quarter as the yen weakened and a stock-market recovery boosted the value of its holdings, including merger partner Sumitomo Metal Industries Ltd. (5405)

Net income was 59.7 billion yen ($735 million) in the three months ended March 31, compared with a loss of 11.2 billion yen a year earlier, the Tokyo-based company said today in a statement. That beat the 16.2 billion-yen median estimate of five analysts surveyed by Bloomberg. Sales fell 6 percent to 1.02 trillion yen.

The weakening of the yen from a record-high in October helped restore the competitiveness of Japanese steelmakers against South Korean and Chinese rivals. JFE Holdings Inc. (5411), Japan’s second-largest steel producer, posted a quarterly profit even after forecasting a loss.

“The market has hit the bottom,” Executive Vice President Shinichi Taniguchi told reporters in Tokyo today. “The pace of recovery will be moderate, though.”

Nippon Steel shares closed unchanged at 201 in Tokyo after earlier rising as much as 2 percent. That pared this year’s gains for the stock to 4.7 percent. Sumitomo Metal was unchanged at 145 yen.

Japanese steel producers are set to boost sales this year as carmakers expand output and post-earthquake reconstruction drives demand, SMBC Nikko Securities Inc. said in an April 16 report. Japan’s key stock index posted its biggest first-quarter gain since 1988, fueled by the central bank’s Feb. 14 decision to increase note purchases by 10 trillion yen.

The Japanese currency traded at 80.7 yen a dollar as of 4:57 p.m. in Tokyo, after reaching 84.18 on March 15, the lowest level this year. The yen rose to a postwar high of 75.35 on Oct. 31.

“The current level is still a bit tough” for steelmakers, Taniguchi said. The ideal level for the yen for manufacturers is 85, or lower.

Nippon Steel didn’t provide a profit outlook for the year that began April 1, citing the unsettled price of raw materials and negotiations with customers. Net income may reach 96 billion yen this year, according to the median estimate of 22 analysts surveyed by Bloomberg.

The company will increase crude steel output to as much as 7.6 million metric tons in the three months to June 30 from 7.39 million tons in the previous quarter, Taniguchi said. The company won’t give a first-half outlook until July, he said.

Merger Partner
Sumitomo Metal Industries, Japan’s third-largest steelmaker, posted a quarterly loss of 16.1 billion yen today, narrowing from the 42.1 billion yen loss a year earlier. Operating profit increased 15 percent to 19 billion yen.

The company, also the top producer of seamless steel pipes used in oil and gas production, expects output of the alloy will exceed 1 million tons in the current year as demand for high-end pipes increase, Executive Vice President Fumio Honbe said today at a press conference in Tokyo, without elaborating. The steelmaker produced 990,000 tons of seamless pipes.

Sumitomo Metal, Nippon Steel’s biggest investment, advanced 19 percent in Tokyo trading in the last quarter, in line with the gain in the benchmark Nikkei 225 stock index. Nippon Steel said April 2 it reversed 80.7 billion yen of losses in the fourth quarter.

The two steelmakers plan to merge on Oct. 1, creating a bigger company to compete against rivals including ArcelorMittal (MT), South Korea’s Posco and China’s Baoshan Iron & Steel Co.

Kobe Steel Ltd. (5406), Japan’s fourth-largest mill, today posted a loss of 26.8 billion yen in the fourth quarter, compared with a profit of 5.7 billion yen a year earlier.