Baosteel predicts sluggish outlook for next three-five years
Lin Tien-wei and Staff Reporter 2012-11-02 14:44
Baosteel's production base in Shanghai. (File photo/Xinhua)
Chinese steel giant Baosteel recorded a net profit rate of 2.46% in the third quarter this year, down 4.88% from a year earlier. A senior executive of the company said that declining demand and rising materials prices will cause the profits of steel enterprises will shrink further and the steel industry will be in a difficult place for the next three to five years.
Baosteel analyzed that due to the need arising from inventory replenishment and the effect of monetary and financial policy, the overall profits of Chinese steel enterprises in the next half a year will be better than the third quarter, although the industry has entered the era of thinning margins.
According to its recently released financial statement, the Shanghai-based company brought in net profits of 1.181 billion yuan (US$189 million) in the third quarter, beating market expectations, on revenue of 47.99 billion yuan (US$7.69 billion), down 14.6% year-on-year. The company's share price inched up 0.66% on Oct. 30, closing at 4.61 yuan (US$0.74).
Market players noted that although profits of Baosteel in the third quarter were higher than expectation, net profit rate reached only 2.46%, even lower than 2.6% rate for three-month time deposits of People's Bank of China, reflecting the business plight of the steel industry.
Ma Guoqiang, president of Baosteel, attributed the higher profits in the third quarter partially to the disposal of some assets, adding that profit performance in the fourth quarter will be worse than the third quarter, due to the listing of losses in the disposal of some assets. He stressed that the Chinese steel industry has entered an era of thin margins and will suffer sluggish business in the next three to five years.
In its quarterly report, Baosteel reported that steel prices have plunged due to sluggish demand from downstream industries, including auto manufacturing, shipbuilding and machinery, export decline and excessive capacity.
Many other Chinese steel enterprises performed poorly in the third quarter. Wuhan Iron and Steel witnessed its net profits plunging 80% year-on-year in the first three quarters this year, while Angang Steel incurred 3.17 billion yuan (US$508 million) of losses, and Shagang Group, the largest private steel firm in China, recorded 9.83 million yuan (US$1.6 million) in losses.
Ma believes that along with an economic upturn, the performance of the Chinese steel industry will gradually improve in the next half a year but a possible spike in the prices of iron ore and coal may squeeze the industry's profits in the fourth quarter.
Ma said exports to Japan by Japanese carmakers manufacturing in China is a major source of business for Baosteel but the sovereignty dispute between the two countries over islands in the East China Sea may drive down demand for steel in the short run. The shortfall, however, may be filled by demand from other auto brands, meaning the long-term effect may only be limited.
