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Japan’s four largest steelmakers said Thursday they are on track to report bumper earnings for fiscal 2003, thanks to a steel market upturn based on strong demand in China.

JFE Holdings Inc., the second-largest firm in the sector in terms of sales, kept its net profit forecast intact at 95 billion yen, well up from the 15.9 billion yen logged a year ago.

The company attributed its strong performance to growth in sales of steel to shipbuilders and other clients, and an increase in steel prices.

JFE’s average steel price during the second half of the current fiscal year is estimated to have been 50,300 yen per ton, up from the 47,500 yen a year ago.

Battered by overcapacity only a few years ago, Japanese firms are enjoying strong demand, thanks to a worldwide shortage of steel caused by China’s rapid economic growth.

Japan’s furnaces and mills are running at almost full capacity, with the country’s steel production expected to rise to 111 million tons in fiscal 2003 from the 110 million tons produced a year ago.

Sumitomo Metal Industries Ltd., the country’s No. 3 firm in the sector, and Kobe Steel Ltd., the No. 4, also left their earnings forecasts issued in late November intact.

Both companies expect to see a jump in net profit.

Kobe Steel will thus be able to reinstitute a dividend for the first time in six years, with the dividend set at 1.5 yen per share.

Meanwhile, Nippon Steel Corp., Japan’s No. 1 steel firm, has cut its November earnings forecast by more than half after deciding to book a hefty 60 billion yen one-time charge to write down the value of properties.

Still, its revised 30 billion yen net profit estimate marks a sharp turnaround from the net loss of 51.6 billion yen booked a year ago.

Yet strong Chinese demand represents a double-edged sword for these steelmakers, which have seen a steep increase in prices of raw materials and freights.

Nippon Steel said that these rising costs will hit its profits to the tune of 6.3 billion yen in the current fiscal year.

JFE said, meanwhile, that these costs are expected to sap its earnings by 30 billion yen.

Moreover, the companies expect the negative impact of these rising costs to worsen in fiscal 2004.

JFE said it expects material and freight costs to increase by more than 100 billion yen in the next year.

The steelmakers said that one of the biggest challenges they face is whether they can successfully persuade clients such as automakers to accept a price increase.

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