Rapidly dropping prices on the domestic steel market so far this year have severely cut into the profit of major steel producers in the country, as was reflected in the financial statements unveiled by some of the listed mills since late August

Of the steelmakers, 37 listed companies were hit hardest by the economic slowdown, with their combined net profits plunging 75.29% from a year ago to RMB3.8bbn (US$596M) in the first six months, according to their half-year reports.
Hebei Iron and Steel Corp. said on Aug. 31 that it expected net profits for the first three quarters to fall 60-90% from a year earlier to between RMB 519 to 129M ($81.4M – 20.2M). According to a filing to the stock exchange, the company’s net profits were RMB 1297M ($203M) in the same period of last year.

The company said that steel demand remained weak in the third quarter. Declining steel prices and high production costs would squeeze profits. Net profits in the first half fell 60.1% year on year to RMB 393.4M ($61.7M) from RMB 988M ($155M) in the same period last year. Its operating revenues also fell 15.7% from a year earlier to RMB 59.68bn ($9.36bn) in the first six months.
Wuhan Iron and Steel Co., Ltd. (Wusteel) reported 89% year-on-year decline for its first-half net profit. The Shanghai-listed steelmaker announced on Aug. 27 that its net profit for the six months ended June 30 was RMB 134.98M ($21.18M), down from RMB 1.23 ($193M) a year earlier, due to sluggish market demand amid lower product prices. First-half revenue also fell 11% to RMB 45.3bn ($7.11bn), according to the announcement. The company’s parent Wuhan Iron and Steel Group, the fourth-largest steel producer by output in the country, cut its full-year profit forecast by 47% last month.

The Shougang Group, for its part, reported a loss of RMB 350M ($54.9M) in the first half, down 214% from the same period last year. The steel producer’s revenues dropped 14% from a year earlier to RMB 5.6bn ($879M) in the first six months of the year, while it saw a loss of RMB 0.12 per share, according to the company’s mid-year report released on Aug. 30. The losses were incurred by the postponement of dividend payments by the Beijing Automotive Group, which the steel producer has invested in, according to the report. A sluggish market and incomplete asset restructuring were also blamed for the loss. The company’s steel production rose 3% to 1.2Mt from January to June, but the decline in raw materials costs failed to cover losses brought about by steel product prices during the first six months.

Nonetheless, Angang Steel Company reported a loss of RMB 1.98bn ($310.8M) in the first half this year, down 998% from the same period last year. The steel producer’s revenues dropped 15% from a year earlier to RMB 39.4bn ($6.18bn) in the first six months of the year, while it saw a loss of RMB 0.27 per share, according to the company’s midyear report released on late Aug. 28.

The losses were incurred by weak steel product prices. The decline in raw materials costs failed to cover losses brought about by steel product prices, says the report. The figures were consistent with the previous estimates released on July 9. In the face of the oversupply in China’s steel market. Steel prices were struggling to rebound in the second half and would continue at a low level in the near term. Affected by the diminishing demand for steelmaking raw materials the price of iron ore has moved downwards. As demand growth for steels in the future would be much lower than that in the past decade, meagre profits are likely to be the norm for the industry.

Source: China Metals e-mail infochn@public.bta.net.cn