Baoshan Steel First-Quarter Profit Rises on Prices

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29 Apr 2008

Baoshan Iron & Steel Co. said first-quarter profit rose 16 percent, rebounding from two quarters of declines, after China's largest maker of the alloy raised prices to help cover higher costs. Net income rose to 4.26 billion yuan ($608 million), or 0.24 yuan a share, from 3.68 billion yuan, or 0.21 yuan, a year earlier, the company said in a statement to the Shanghai stock exchange. Lower taxes also boosted profit, it said.
Baoshan Steel raised benchmark prices 8 percent in the first quarter, passing on higher coal costs to automakers and builders. Baoshan Steel Chairman Xu Lejiang last month said market conditions will be more difficult this year as costs rise and the government reins in lending.
``The result is better than expectations, probably thanks to the steel prices,'' said Lu Yizhen, who oversees the equivalent of $1.3 billion as head of research at Citic- Prudential Fund Management Co. in Shanghai. ``It's an incentive to the market sentiment over steel stocks,''
Baoshan Steel rose 2.3 percent to close at 13.19 yuan in Shanghai, beating a 1.3 percent gain in the benchmark CSI 300 Index.
Sales gained 9 percent to 47 billion yuan. Tax paid fell 20 percent in the quarter from a year ago, the company said without giving details.
Higher Prices
The Shanghai-based company, which raised benchmark prices 20 percent for the second quarter, posted a 2.7 percent profit decline for 2007 because of rising costs.
``Operating costs in the first quarter were lower than expected, leading to a better result,'' Luo Wei, analyst with China International Capital Corp., said in Shanghai. ``In the second quarter, Baoshan is more profitable after raising prices by as much as 1,000 yuan, compared with a 400 yuan rise in costs.''
Steel prices in China, which have risen 15 percent this year, may have ``limited room for future increases'' and may even fall by a ``small margin,'' the China Iron and Steel Association said today at a press conference.
Costs will rise further this year after Baosteel Group Corp., the parent of Baoshan Steel, agreed on Feb. 22 to pay Brazil's Cia. Vale do Rio Doce as much as 71 percent more for iron ore from April. That will add 7 billion yuan to Baosteel's expenses, Chairman Xu said last week.
Iron Ore Talks
Chinese steelmakers are still negotiating with Rio Tinto Group and BHP Billiton Ltd. for the price of ore from Australia. Rio and BHP, the world's second- and third-largest iron-ore exporters, want more than a 71 percent increase.
Chinese coking-coal prices will climb 15 percent in the second quarter, after gaining 35 percent in the first three months of the year, producer Hidili Industry International Development Co. said April 18.
Coking coal and iron ore are used in steelmaking.
``We expect moderate margin expansion in the second quarter, yet the risk on second half remains on the downside on rising domestic coking-coal prices, uncertainty in Australia iron-ore negotiation, combined with potential demand elasticity on hefty steel prices,'' Credit Suisse Group analysts said in a note today.

Source: Bloomberg