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Baosteel's first half profit down 92.8%Published: 30 Aug 2009 16:02:01 PST
By Wang Xinyuan

Shanghai-based Baosteel Iron & Steel reported yesterday 9 billion yuan ($132 million) profit in the first six months in 2009, down 92.8 percent year-on-year.

China's top steel maker is expected to perform better in the second half of the year, but uncertainties remain, according to market analyst.

According to Baosteel's half-year report filed yesterday at the Shanghai Stock Exchange, the sales volume of steel products in the first half fell by 18.3 percent, and the gross margin dropped by 15.6 percent compared with the same period of last year. The total revenues for the first half reached 65.48 billion yuan ($9.59 billion), down 37 percent year-on-year.

Sluggish domestic demand in the first quarter and a dramatic plunge in exports aggravated the whole industry, which was already struggling with the problem of overcapacity, according to the report.

China's steel exports reached 11.16 million tons with a total value of $11.79 billion in the first seven months, down 67.3 and 64.4 percent year-on-year, while 9.88 million tons were imported, up 1.6 percent. The imports are only valued at $11.05 billion, down 19 percent from the same period of last year, according to customs.

China's economic stimulus packages, which includes funding for infrastructure projects that require steel products, sparked a price rebound in April and May, Ma Li, manager of the information department at Beijing-based Lange Steel Information Research Center, told the Global Times yesterday.

Baosteel raised prices for major steel products by more than 10 percent, reported Reuters in June, citing unnamed sources.

Baosteel further raised prices in August, according to a report by Shenyin Wanguo Securities in July.

The steel prices then went on a roller-coaster ride in July and August. The prices of rebar and wire rods, two important steel products used in infrastructure projects, soared in October to 4,627 yuan ($677) and 4,503 yuan per ton respectively by the end of July, up 804 yuan and 757 yuan respectively over the beginning of the month. The prices later slid to 4,264 yuan and 4,025 yuan per ton by the end of August.

The price spike in July was mainly due to market expectations of rebounding demand due to the stimulus package. The mid-summer price recovery was also boosted by speculation in the futures market and stockpiling by distributors, Liu Chen, an analyst with Guan Tong Futures Brokerage, told the Global Times.

With the lingering overcapacity problem and a lack of market demand, speculators cashed in their July gains in August and drove down the market price, according to Liu.

The new regulations unveiled in September and October are more likely to prevent new steel makers from entering into production rather than cutting down on existing production, estimated Liu.

Overcapacity won’t be effectively resolved unless some large State-owned steel makers proactively cut their production, Liu continued. This is unlikely because sales and production are two separate units within State-owned steel producers and do not coordinate efforts.

Furthermore, construction sites in the north close down in the winter. Most of the steel makers, therefore, will compete fiercely for market share in the south, and they wouldn't give that up to other companies by producing less, Liu said.

Though uncertainties remain, the rebounding domestic economy will likely bring about improvements in the overall performance of the steel industry in the second half of the year, stated Baosteel’s report.

"Baosteel's products are closely related to the automobile industry and the home appliance sector," said Lange's Ma. "Since these industries are recovering, Baosteel should see better performance 简历翻译 ツーショットダイヤル 联轴器 テレホンセックス