China Major Steels Post Better 1H Results, Uncertain for 2H

Higher raw steel output and selling price improved Chinese major steel makers’ consolidated results in January-June compared with same period of 2009. Major 8 makers posted higher net profit or regained profitability while Chongqing Iron & Steel posted lower profit. However, they could face severer market condition in the second half year due to lower steel price under uncertain domestic demand and lower export along with higher raw materials cost.

Chinese raw steel production increased by 21% to 323.17 million tonnes in January-June from same period of 2009 despite of adjustment in automobile and construction industry since April when the government tried to cool overheated economy, especially in financial and real estate industry. Chinese major steel makers posted higher increase in sales than production increase due to higher steel price. The major 7 makers posted higher sales and profit in April-June from January-March.

Baoshan Iron & Steel reported the averaged unit sales were 7,460 yuan per tonne for January-June, which was much higher than Anshan Iron & Steel and Wuhan Iron & Steel. Baosteel’s gross profit rate on sales was 22% for hot rolled flat steel and 28% for cold rolled flat steel. The firm’s automotive cold rolled flat steel sales hit record high.

Angang also reported the automotive cold rolled flat steel sales were record in January-June. Wugang reported the electrical steel sales increased by 52% thanks to higher demand for power infrastructure. Guanggang and Jigang increased the export when Chinese steel export was 2.5 times in the first half from same period of 2009.

However, the steel export in July hit first drop in 5 months after the termination of export tax rebate for some steel items in mid-July. Angang reported the firm tries to keep the production level despite of the lower selling price in July-September. Wugang reported steel sales volume and price decreases in July and August due to production adjustment by automobile and appliances makers. Chonggang warns domestic oversupply when the government tries to reduce steel export.

Chinese steel market price experienced small ranged up and down since late July. Chinese major makers announced around 300 yuan per tonne of price hike in September. However, small sized steel makers apparently increase the output despite of the slow recovery in actual demand. The steel makers’ profitability could be severer in second half year when they cannot cover high raw materials cost at the relative low level steel selling price.