Earthquake rebuilding to increase producer earnings

Earthquake rebuilding to increase producer earnings
Published: 17 October 2011

Japanese cement producers, Taiheiyo Cement Corp and Sumitomo Osaka Cement Co are likely to have logged better-than-expected results for the April-September half on reconstruction demand from the Great East Japan Earthquake.

Taiheiyo Cement is expected to report a consolidated operating profit of about JPY4bn, beating its earlier projection by roughly JPY1bn. For the same period a year earlier, it had posted an operating loss of JPY1.8bn.

Sales likely stayed flat at around JPY340bn. Domestic cement sales grew 2% in volume terms, turning around from an earlier forecast of a 1% decline. But the strong Japanese currency pushed down a US subsidiary’s sales in yen terms.

Construction work suspended across Japan because of the disaster has resumed, boosting cement demand. Demand in the northeastern Japanese region of Tohoku began showing YoY growth in August on repairs to damaged factories. Sales were also strong for cement for use in concrete blocks for breakwaters. And with nuclear reactors shut down, cement was used in construction to boost output at fossil-fuel-burning power plants.

Operating earnings at the US unit improved in yen terms. The subsidiary’s cement shipments rose nearly 5% on increased road construction in the state of California.

Sumitomo Osaka Cement, meanwhile, is seen reporting a consolidated operating profit of about JPY3bn, topping an earlier forecast by slightly more than JPY500m. The figure amounts to a roughly 50% jump on the year.

Sales are believed to have grown slightly to just under JPY100bn. In volume terms, cement sales rose 2% instead of falling 2% as projected. Earnings also got a boost from price hikes of up to 5% in the first half.

Both companies anticipate sharp increases in operating profit for the full year through March 2012. But given the uncertainties over when they will ship cement for repairs of ports and roads damaged by the disaster, they are unsure whether their second-half results will exceed projections.