Baoshan Steel Expects First-Half Profit to Plunge

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29 Apr 2009

Baoshan Iron & Steel Co., China’s largest steelmaker, expects to post a “big decline” in first- half profit from a year ago as overcapacity in the world’s largest consumer of the alloy depressed prices. Prices are under pressure and are close to breakeven costs, General Manager Ma Guoqiang said today in an online conference with investors.
China’s benchmark steel price has dropped 12 percent this year as mills ramped up production in anticipation of a demand boost from the country’s 4 trillion yuan ($585 billion) stimulus. Baoshan yesterday said first-quarter profit plunged 98 percent.
“Demand from auto and appliance industries have shown an obvious increase, which will benefit orders for the second quarter,” Ma said. “Still, prices are close to breakeven costs. As such, the pressure on profit in the second quarter remains very big.”
Baoshan, which supplies about half of the domestic auto and appliance steel markets, will shift production to steel plates, pipes and cold-rolled products while cutting the percentage of hot-rolled coil in the total output, Ma said.
China became a net crude-steel importer for the first time in three years in March after overseas sales plunged, the Ministry of Industry and Information Technology said April 23.
Russian Imports
China’s steelmakers are also confronted with low-grade imports from Russia and other countries, Vice President Chen Ying said at the same conference. The government should adopt anti-dumping measures against the cheap imports, she said.
Brazil’s Cia Vale do Rio Doce, the largest supplier of iron ore, has offered a 20 percent price discount to bolster sales and rival BHP Billiton Ltd. has increased cash ore sales after customers deferred deliveries. Iron ore producers and Chinese steelmakers, led by Baosteel Group Corp., Baoshan’s parent, are negotiating 2009 benchmark contract prices.
The contract prices should fall below 2007 levels to match plunging steel prices, Ma said today. Baoshan has used up its “expensive” iron ore inventories bought in 2008, he said.
The company, the nation’s second-biggest producer of stainless steel after Shanxi Taigang Stainless Steel Co., also said profit of the rust-proof metal unit recovered in the first quarter.

Source: Bloomberg