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Chinese steel mill profits plunge nearly 50pct

Steel News - Published on Wed, 27 Jun 2012

Despite the fact that the Chinese government is approving more investments in hope that it could reflate the economy many including ourselves are not hugely impressed, particularly as the country has already been over investing.

We noted that the government has approved quite a few investment projects in new steel mills, while some of the older and less efficient steel mills will probably be closed down as part of the package for the new investments. However, with the continued slowdown in the economy, there is little reason why closing down a fraction of capacity can be hugely helpful.

The latest data from the National Development and Reform Commission suggests that steel mills’ profits have plunged by 49.5% in January to April this year compared to the same period last year:

1. The NDRC’s latest data showed that steelmakers’ profits in January to April 2012 plunged by 49.5%YoY to CNY39.5 billion. In particular, profits of steel smelting and processing companies plummeted by 68.8%YoY and those of ferrous metals mining and dressing companies by 7.9%YoY.

2. Further, the CEIC database showed that total profits of large and medium enterprises in January to April 2012 plunged by 97%YoY from CNY32.98 billion to CNY1.15 billion. Profits in April reached CNY2.18 billion up by 23%MoM yet down by 74%YoY.

3. The YTD profit margin of large and medium enterprises through April 2012 was 0.1%, a significant deterioration from 2.86% in the same period last year. Monthly profit margin increased slightly from 0.57% in March to 0.65% in April, yet remained 2.2pp lower than that in April 2011. We estimate an implied ROA of 0.6% for large and medium enterprises, much lower than the 2.9% recorded in the same period last year.

We noted earlier that steel traders have already been under pressure for quite a while, the latest data suggests, unsurprisingly, that steel mills are also under pressure.

Source - Business Insider


Posted By : admin on Wed, 27 Jun 2012
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