5401 Is Nippon Steel a 'Loser' or a Potential Game-Changer?
Hello! I'm N, and I live solely off of stock investments.
In this article, I will explain whether Nippon Steel is a 'loser' or a potential game-changer!
Let's dive in!
Is Nippon Steel an 'undervalued stock' or a 'risky stock'?
This assessment is divided even within the market.
Concerns over financial deterioration due to the US Steel acquisition
The appeal of income from high dividends (over 4%)
Rising global recognition
Structural changes in the steel industry
At first glance, it is a stock with clearly defined pros and cons.
However, I do not view this stock merely as a 'steel company,' but rather as
a company at the center of structural change.
■ Nippon Steel's Position
Nippon Steel is one of Japan's largest steel manufacturers and a top-tier company globally.
Its current global ranking is as follows:
1st: China Baowu Steel Group
2nd: ArcelorMittal
3rd: Nippon Steel
Nippon Steel is ranked 3rd in the world, and the gap with 2nd place is not that large.
On the other hand, there is a significant difference in production volume compared to the Chinese company in 1st place.
In other words, the current structure is predicated on 'China's overwhelming scale advantage.'
■ Why I believe this structure will change
Nevertheless, I believe this structure has the potential to change in the future.
There are three reasons.
1. Reevaluating dependence on China
Globally, the risks of dependence on China are becoming more apparent.
As supply chain diversification progresses,
steel is no exception, and there is a possibility that procurement sources will be reevaluated.
In that case, the value of suppliers with quality and reliability will increase.
2. Geopolitical shifts due to US-China tensions
As US-China tensions persist,
the United States is strengthening industrial cooperation with its allies.
Within that trend, the importance of Japan's manufacturing and materials industries is growing.
Steel is no exception to this.
3. A shift from 'quantity' to 'quality'
The current steel market is in a state of oversupply.
Therefore, in the future,
not how much can be produced (quantity)
buthow high the performance is (quality)
will become important.
Nippon Steel has strengths in this 'high-value-added domain.'
High-tensile steel sheets (high-tensile steel)
High-performance materials for automotive and energy sectors
Custom development capabilities for each customer
■ Comparison with China Baowu Steel Group
China Baowu Steel Group is the world's largest steel company with overwhelming production volume.
On the other hand, Nippon Steel has the following characteristics.
China Baowu: Advantage in volume and scale
Nippon Steel: Quality and specialization in applications
Both have their strengths, but
the structure is such that their superiority changes depending on the axis of evaluation.
■ Macro Environment (Green Steel)
In the future steel industry, the impact of environmental regulations cannot be ignored.
Particularly in the United States, depending on policy, there is a possibility of
accelerated decarbonization
expansion of ESG investment
increased demand for low-carbon steel materials
occurring.
This trend will be a tailwind for companies strong in 'green steel'.
■ Summary as an Investment
Based on the structure discussed so far, Nippon Steel has tailwinds such as
rising global recognition
high dividends (over 4%)
technological superiority
changes in the macro environment
.
On the other hand,
Scale disparity with China
Impact of economic cycles
Financial burden risk
are risks that also exist.
■ Conclusion
Regarding Nippon Steel, I judge it to be
a stock where the structural upside may be greater than the risks
.
Of course, it is impossible to predict the future with certainty.
However, based on its structure and the direction of change, I believe it is one investment target to watch over the medium to long term.
*Please invest at your own risk
