ENVALITH
株式会社 神戸製鋼所 logo

Kobe Steel, Ltd.

5406・Prime Market・Iron & Steel

Official website
株式会社 神戸製鋼所 logo
Kobe Steel, Ltd.5406

Business

Kobe Steel, Ltd., founded in 1905, is a comprehensive heavy industry company forming the KOBELCO Group, which comprises 188 subsidiaries and 44 affiliated companies. Its business is composed of three areas: "Materials-related Businesses" (Steel & Aluminum, Basic Materials Components, Welding), "Machinery-related Businesses" (Machinery, Engineering, Construction Machinery), and "Electric Power Business." The company supplies basic materials for all industries, including transportation equipment, electrical equipment, construction and civil engineering, industrial machinery, and social infrastructure, while also providing high value-added products and services centered on proprietary technologies—such as the MIDREX® Direct Reduced Iron Process (Direct Reduced Iron Plant), which boasts a global market share of approximately 60%, and high-efficiency thermal power generation—to a wide range of customers both domestically and internationally.

Business Model

In the materials-related businesses, the company manufactures and sells steel, aluminum, cast and forged steel products, welding materials, and similar products, securing earnings through price pass-through for cost inflation and volume expansion. In the machinery-related businesses, the company provides made-to-order industrial machinery, plants, and construction machinery, with after-sales service and maintenance-related work boosting profitability. In the electric power business, the company earns stable electricity sales revenue based on long-term power supply agreements. The mutual complementarity of these three business domains forms an earnings structure that is resilient to economic cycles.

Company Strengths

MIDREX® Process, held by the Engineering segment, accounts for approximately 60% of the global market share in direct reduced iron production. The company has established a unique technology base to capture decarbonization demand by deploying MIDREX Flex™ and MIDREX H2™, which allow flexible switching of reducing agents from natural gas to hydrogen, and by receiving an order for the world's first commercial 100% hydrogen-based direct reduced iron plant.

Net sales of ¥2,436,581 million (FY2026, ending March 2026) are distributed across seven segments: Steel & Aluminum, Basic Materials Components, Welding, Machinery, Engineering, Construction Machinery, and Electric Power. While the Machinery segment generates high profitability with ordinary income of ¥46,703 million, the Electric Power segment secures stable profit of ¥34,764 million, resulting in a revenue structure with reduced dependence on any single business.

The D/E ratio improved significantly from 1.00x in FY2022 to 0.61x in FY2025, while the equity ratio rose from 34.0% to 46.4%. The company achieved the medium-term management plan targets (D/E ratio in the mid-0.7x range, equity ratio in the low-40% range) ahead of schedule. Free cash flow of ¥128.0 billion was secured in FY2025, and the strengthening of the financial base is progressing steadily.

ENVALITH's Perspective

Operating income for FY2026 (ending March 2025) of ¥129,883 million represents an 18.2% year-on-year decrease, marking the second consecutive year of declining profit. The main causes were the simultaneous deterioration of ordinary income in the Electric Power segment, which fell ¥17.5 billion year-on-year to ¥34.7 billion (due to extended periodic inspection of Kobe Power Plant Unit 3, timing gaps in fuel cost adjustments, and a shrinking one-time profit boost effect), and in the Steel & Aluminum segment, which fell ¥20.7 billion year-on-year to ¥2.8 billion (due to worsening metal spreads, deteriorating inventory valuation effects, and rising fixed costs). As an external factor, fluctuations in coal market conditions and declines in steel raw material prices directly hit earnings, and there remains a risk that the fading of the one-time profit boost effect in Electric Power will continue into the next fiscal year.

In FY2026 (ending March 2025), ordinary income in the Machinery segment reached ¥46.7 billion (up ¥14.1 billion year-on-year), growing into a core profit driver accounting for approximately 38% of total company ordinary income of ¥121.3 billion. Meanwhile, the forecast for FY2027 (ending March 2026) anticipates a profit decline in the Machinery segment due to lower core business sales and rising fixed costs, and the Engineering segment is also expected to see declining profit due to changes in project mix, among other factors. The quality (profitability) of the order backlog in machinery-related businesses and changes in project mix will be important points to watch, as they will determine the direction of company-wide profit margins.

In the Basic Materials Components segment, sales volumes of aluminum extrusions and suspension components for automotive applications fell below the previous fiscal year, while in the Steel & Aluminum segment, stagnant construction demand and declining raw material prices worsened metal spreads, putting pressure on earnings. As an external factor, the slump in China's real estate market and sluggish personal consumption are restraining the recovery of demand for construction machinery and materials. In the next fiscal year (FY2027, ending March 2026), a recovery in volume and improvement in inventory valuation effects are expected for materials-related businesses, but uncertainty over US trade policy (including a ¥10 billion downside risk already factored in related to Middle East tensions) remains a factor that could push results lower.

Growth Strategy

Focusing on "strengthening earning power" and "pursuing growth," the company aims to capture demand from machinery-related businesses and the energy transition

The company continues to promote price pass-through for inflationary items (labor costs, logistics costs, raw material costs, etc.) while working to curb cost increases through self-help efforts. For FY2027 (ending March 2026), it expects increased revenue and profit across all materials-related segments, namely Steel & Aluminum, Aluminum Sheet, Basic Materials Components, and Welding.

The company plans to steadily recognize revenue from the Machinery segment's order backlog of ¥241.2 billion and the Engineering segment's order backlog of ¥386.0 billion, while expanding service projects such as after-sales service and maintenance to improve profitability. In FY2026 (ending March 2026), the Machinery segment achieved a significant increase in ordinary income to ¥46.7 billion.

Leveraging the MIDREX® Process, which holds a global market share of over 60%, the company aims to expand orders for reduced iron-related plants amid decarbonization-driven demand. For FY2027 (ending March 2026), Engineering segment orders received are expected to increase due to the receipt of multiple projects in the reduced iron-related business.

With the reduced impact of the extended periodic inspection of Kobe Power Plant Unit 3, the company expects electricity sales volume to increase in FY2027 (ending March 2026). On the other hand, ordinary income is expected to decrease due to the fading effect of timing differences in fuel cost adjustments. The company secures its mid- to long-term business foundation through winning a long-term decarbonized power source auction for the retrofitting of existing facilities to enable 20% ammonia co-firing.

The company continues to reduce interest-bearing debt (¥769.9 billion at the end of FY2026 (ending March 2026), a decrease of ¥116.4 billion year on year) and improve its equity ratio (44.0%), while maintaining an annual dividend of ¥80 (dividend payout ratio of 33.6%). For FY2027 (ending March 2026), the company also plans to maintain an annual dividend of ¥80 (forecasted dividend payout ratio of 31.8%), continuing stable and consistent shareholder returns.

Last updated: July 19, 2026