Listed steel mills in China are expected to report either declining profit growth or losses for the first half-year period due to sluggish demand, lower steel prices and over capacity, ChinaDaily reported on Thursday.
Twenty-seven listed steel firms have forecast a less-than-rosy performance in the first-half; with 15 companies forecasting losses and 12 predicting declining profits compared to the same period in 2008.
The 27 steel mills, cumulatively, expected to post a loss of 9.64 billion yuan ($1.41 billion), compared to a profit of 36.3 billion yuan during the same period last year.
Angang Steel, which forecast a loss of up to 2.99 billion yuan, ranked as the top loss-maker among the 27 firms.
The company had reported profits of 5.98 billion yuan during the same period last year, helped by markets hungry for steel thanks to the booming domestic economy. It had also reported a profit of 8 million in the first quarter of 2009, indicating that the performance could worsen in the second quarter.
Besides Angang Steel, Baogang Steel, Panzhihua New Steel & Vanadium Company, Taigang Stainless Steel all reported a loss forecast of over 100 million yuan.
Xu Lejiang, chairman of China's largest steelmaker Baosteel Group claimed in June that China's steel industry may post a loss for the whole year of 2009 as overproduction persists in a weak global market.
The Chinese steel industry was in the red for the previous seven months until May, ChinaDaily said, citing Wang Xinguang, a steel industry investment manager at private equity firm Hao Capital. Two-month profits cannot compensate for the loss in the first half-year.
Chinese steel mills signed an annual iron ore contract at $93 per ton in 2008, up 78% from 2007, but in the latter half of 2008, the economic meltdown shrank steel demand and steel prices plunged.
As a result, steel mills now cannot charge more to cover their raw material costs, he said. This factor contributed significantly to the loss forecast, Wang said.
Fan Haibo, a steel analyst at Beijing-based Xinda Securities, was quoted as saying most listed steel firms produced high value-added steel products such as plates, which were usually not in high demand during a downturn.
Small private steel firms produced construction material like deformed steel bars and were more profitable than listed steel mills, Fan said.
China's steel demand was picking up steadily, driven by the recovery of the manufacturing and property sectors, a report by the China Iron and Steel Association said on Monday.
However, players remained cautiously optimistic about the recent recovery under the pressure of uncertainty over the iron ore price negotiation.