This month, Nippon Steel joined a consortium led by Glencore to buy Teck Resources' steelmaking coal unit for $9 billion. The Japanese company will pay about $1.34 billion for a 20% stake in the unit.
"Coking coal prices are expected to rise as investment in mines declines due to carbon neutrality initiatives and supply tightens in the medium term," Takahiro Mori, Nippon Steel's executive vice president, said in an interview. He emphasized that securing its own interests is of utmost importance.
Japan's leading steelmaker already has stakes in several coking coal mines, which account for about a fifth of its 25 million metric tons of annual coal imports. With the latest acquisition, this share will rise to around 30 percent.
Nippon Steel sells about 60 percent of its products to customers on credit, a mechanism that adjusts selling prices to raw material costs. However, the remaining 40% are commodity products that are directly exposed to fluctuations in the steel market.
"We aim to increase our self-sufficiency rate to around 40% to eliminate the impact of raw material prices on market products," Mori said, referring to both coal and iron ore.
Currently, Nippon Steel sources 20% of its 50 million tons of iron ore imports from its own capital.
Nippon Steel expects a significant increase in annual profit of about 70-80 billion yen ($476-543 million) following the acquisition of a 20% stake in Teck's coking coal business. Earlier this month, the company raised its net profit forecast for the fiscal year to the end of March by 11% to 420 billion yen, citing improved margins in the first half as a contributing factor.