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Chinese steel industry profits continue to shrink

Steel News - Published on Wed, 04 Jul 2012

The Economic Information Daily citing statistics from an industry association said the combined profits of China major steel producers dropped more than 94%YoY to CNY 2.53 billion in the first five months this year amid sluggish demand as well as severe overcapacity in the sector.

According to the report in May, the combined profits of the 77 steel mills surveyed by the China Iron and Steel Association slid 21.7%MoM to CNY 1.4 billion, even though the second quarter is supposed to be a peak season for the industry. Also in May over 30% of companies in the sector suffered losses.

Mr Qu Xiuli deputy secretary general at the CISA said \"The steel market was weaker than expected in April and May. Plus, production capacity in the sector still far exceeds current domestic demand.\"

Leading steel producers such as Baosteel Group, Anshan Iron and Steel Group and Wuhan Iron and Steel Group have cut the July factory prices of their products by about CNY 200 per ton. Current steel prices have dropped around CNY 800 per ton compared with the same period in 2011.

Mr Qu said high costs of labor and raw materials have also affected steel mills\' profits. He said that \"Even though iron ore and coking coal prices have showed a moderate decline since April, it is still not enough to cover the losses incurred by the price drop of steel products.\"

Currently most large and middle-sized steel mills are cutting production to avoid further losses, but Mr Qu noted that some small mills are still enlarging their production despite the current gloomy market.

According to statistics from the CISA production of the member companies of the CISA was down by 0.6% in the first five months this year while that of small mills increased by 18.5% during the same period.

According to statistics from the China Federation of Logistics & Purchasing the production index for the steel sector fell 3.6 percentage points to 50.3% in June. The fall in the index indicating shrinking industrial activity in the sector means that the pressure of overcapacity in the sector may be easing.

But experts said that the industry is not likely to see an upturn any time soon. Mr Wang Guoqing a senior analyst with Beijing Lange Steel Information Research Center said \"Profits in the steel industry will continue to be dampened by the slowing economy.\"

Mr Wang noted that given the government\'s tightening policies on the real estate sector, which consumes some 30% of total domestic steel production, no significant increase in steel demand will be seen in the near future.

He said that \"In addition, construction will be further affected by the heat in summer and the torrential rain in some places, noting that steel demand is unlikely to pick up in the third quarter.

Source - The Economic Information Daily

(www.steelguru.com)

Posted By : admin on Wed, 04 Jul 2012
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