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Nippon Steel ( NISTF ): U.S. steel market conditions worse than

expected

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Widens full year loss guidance by 50% on Brazil asset

withdrawal

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Expects synergies with U.S. Steel going forward

By Yuka Obayashi and Katya Golubkova

TOKYO, Nov 5 (Reuters) - Nippon Steel ( NISTF ), Japan's

biggest steelmaker, said it expects to report a 14% fall in

annual profit before one-offs for the current fiscal year, but

that excluded its outlook for U.S. Steel, due to significant

challenges in the U.S. market.

The Japanese steelmaker expects an underlying business

profit, or profit adjusted for one-offs, of 680 billion yen

($4.51 billion) for the year ending in March, down from 793.7

billion yen last year.

Nippon Steel ( NISTF ), which acquired U.S. Steel in June in a $15

billion deal, said it excluded the business from its forecast

for this fiscal year because "the current U.S. steel market

conditions are significantly below the levels initially

anticipated" in addition to cost rises due to equipment-related

issues and "heightened uncertainty in the U.S. market."

Before the deal, U.S. Steel's steelmaking capacity was

around 40% of Nippon Steel's ( NISTF ) 66 million tonnes a year available

globally. Nippon Steel ( NISTF ) views U.S. Steel as a key part of its

long-term strategy for reaching an annual steelmaking capacity

of 100 million tonnes.

"U.S. Steel's current earnings structure is very fragile,

but executing investments will be an extremely effective measure

to improve profitability," Nippon Steel ( NISTF ) Vice Chairman Takahiro

Mori told a press conference, reaffirming its plan to steadily

push ahead with investments.

On Tuesday, U.S. Steel announced spending of $14 billion on

a multi-year growth plan with Nippon Steel ( NISTF ), with $11 billion to

be invested by the end of 2028.

Nippon Steel ( NISTF ), which steered the U.S. Steel deal through

political and union opposition, expects potential synergies of

$0.5 billion annually by 2030, it said.

"On top of decarbonisation requirements, the pledged capital

expenditure in the U.S. would make it challenging for the

company to keep dividends high," Jefferies said in a note.

"Thus, we think that there is risk of a capital raise."

Nippon Steel ( NISTF ) posted a loss of 113.4 billion yen for the six

months to the end of September, versus a profit of 243.4 billion

yen in the same period a year earlier.

The steelmaker also said it expects to report a fiscal full

year loss of 60 billion yen, 50% more than its previous forecast

as it would book a 21 billion yen loss on the exit from the

Usiminas steel manufacturing company in Brazil.

Nippon Steel's ( NISTF ) minority stake in Usiminas will be

transferred to another shareholder, Ternium ( TX ), as the

Japanese company plans to focus on its key regions: the U.S.,

India and Thailand instead, it said in its results presentation.

"The sale of Usiminas shares is intended to mitigate further

impairment risks, as no significant recovery is expected in

Brazil soon," Mori said.

($1 = 150.7800 yen)