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Steel producers in Japan, mired in one of their biggest postwar crises, are likely to reveal that troubles have crept into the new fiscal year when they start reporting earnings this week.

Nippon Steel Corp., the country’s top producer and third-biggest in the world, and JFE Holdings Inc. have been pummeled this year as the coronavirus pandemic hurt already weak Japanese demand and the domestic industry faces intensifying rivalry from other Asian steel-makers. Analysts expect the companies to report losses in the first quarter after both Nippon and JFE posted record annual losses in the year ended March 31 amid multi-billion dollar impairments.

Nippon Steel reports earnings Tuesday and JFE is expected to release its quarterly figures Aug. 12.

"There’s little good news,” said Takeshi Irisawa, an analyst at Tachibana Securities Co. in Tokyo. "The key focus at their quarterly earnings is whether there are any visible signs that demand will bottom out at some point and head for a recovery.”

Steel-makers outside China have struggled as COVID-19 lockdowns curbed production and demand, with a recent resurgence of virus cases further clouding the outlook for the global economy. ArcelorMittal said last week it remained cautious about a nascent recovery in its core steel markets, and was considering "structural changes” in light of the pandemic.

In Japan, output has slumped after operations were halted at one-third of the country’s 25 blast furnaces, and the crisis has even spurred talk of industry consolidation. Nippon Steel’s president and steel federation chief Eiji Hashimo has previously warned crude steel output could fall below 80 million tons this fiscal year, less than what China makes in a month.

Shares of both Nippon Steel and JFE remain near the record lows reached in April, and they’ve lost a combined $10 billion of their value this year. The Topix Iron & Steel Index has slumped the most this year after the air transportation and mining sectors.

It may take longer for Japanese steel-makers that operate blast furnace mills, like Nippon Steel and JFE, to see an earnings recovery compared with other manufacturing industries due to low volumes and factors such as price cuts and higher expenses, according to Atsushi Yamaguchi, senior analyst at SMBC Nikko Securities Inc. Earnings may not bottom until the third or fourth quarter in a worst case scenario.

Still, Nippon Steel "remains our top pick thanks to its aggressive fixed-cost reductions and restructuring,” Yamaguchi said in the July 22 report. "Over the long term, we expect earnings at the firm to pull ahead of the pack.”

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