Japan’s biggest steel producer, Nippon Steel, has warned investors that it expects a roughly 14% drop in underlying profit for the fiscal year to March 2026, forecasting 680 billion yen ($4.5 billion) compared with 793.7 billion yen a year earlier. The company cited a difficult operating environment and higher running costs as reasons for the weaker outlook.

The results and guidance notably omit the performance of U.S. Steel, which Nippon Steel bought in June for about $15 billion. Management said it excluded the American unit from its projections because demand in the U.S. has been softer than anticipated, equipment-related expenses have risen, and the region faces “heightened uncertainty.”

U.S. Steel represents almost 40% of Nippon Steel’s worldwide capacity, which stands at 66 million tonnes a year. Despite the current pressure on profits, the Japanese group views the acquisition as a strategic step toward its longer-term target of producing 100 million tonnes annually.

Earlier this week, U.S. Steel unveiled a joint multi-year investment programme with Nippon Steel valued at $14 billion, with about $11 billion planned to be invested through 2028. Nippon Steel says these investments should strengthen operations in the United States over time, even if they weigh on near-term results.

For the six months to September, Nippon Steel swung to a loss of 113.4 billion yen, versus a 243.4 billion yen profit in the same period a year earlier. The company now expects a full-year net loss of 60 billion yen — about 50% worse than it previously forecast — after recording a 21 billion yen hit tied to its exit from Brazilian steelmaker Usiminas.

To reduce risk and sharpen its growth focus, Nippon Steel is shifting attention to priority markets such as the U.S., India and Thailand while divesting non-core holdings. The sale of its minority stake in Usiminas to partner Ternium is part of that reorientation.

While short-term figures look strained, Nippon Steel remains committed to expanding globally and advancing its decarbonisation plans, betting that sustained investment in U.S. operations will ultimately restore profitability and reinforce its position in the global steel industry.