Sumitomo Metal Industries Gains as Net Outlook Raised

By Dave McCombs

Oct. 31 (Bloomberg) -- Sumitomo Metal Industries Ltd., Japan's third-biggest steelmaker, climbed for a fourth day after the company raised its forecast for full-year earnings, citing strong sales of high-grade seamless pipe and declining costs.

The shares climbed 5.5 percent to 249 yen at 1:57 p.m. in Tokyo, compared with a 1.4 percent gain in the Topix Iron & Steel sub-index. The Osaka-based company has gained 49 percent since Oct. 27, the biggest four-day rally since at least 1974, the earliest year for which Bloomberg has data.

``Order inflow for SMI's high quality seamless pipe products -- an area of strength -- remains strong so far, with further price increases likely,'' Atsushi Yamaguchi, an analyst at UBS AG, wrote in a note to clients about the company's earnings. ``The order backlog for power generating boiler tubes also remains strong.'' He left his ``buy'' rating on the shares unchanged.

Sumitomo Metal Industries, which has the highest operating margin among Japan's blast-furnace steelmakers, has prevented a slump in demand from eroding earnings by focusing on higher-grade products such as pipes used in oil exploration and production. The company yesterday said it would trim production by about 1.3 percent in the six months ending March 31, responding to a slump in global auto demand.

Net income will probably advance 2.5 percent to 185 billion yen ($1.9 billion) in the year ending March 31, compared with the previous forecast for 160 billion yen, the Osaka-based company said yesterday in a statement to the stock exchange.

Operating margin, or operating profit divided by sales, was 13 percent in the three months ended Sept. 30, compared with 9 percent for Nippon Steel Corp., Japan's biggest mill.

To contact the reporter for this story: Dave McCombs in Tokyo at dmccombs@bloomberg.net;