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Steel sector dives deep into red

By Li Fangfang (China Daily)
Updated: 2008-10-31 09:09

A worker moves a roll of steel at a steel market in Beijing. [China Daily]

China's once profitable steel industry plunged further into the red in October due to a combination of shrinking demand, prices and exports resulting from the global financial crisis, China Iron and Steel Association (CISA) said yesterday in Beijing.

"In September, 23 of the surveyed 71 large- and medium-sized steelmakers were unprofitable. In the first nine months of the year, steelmakers' total losses reached 1.15 billion yuan, 18 times that in the same period last year," said CISA Vice-Chairman Luo Bingsheng.

"This month, the situation is getting worse. More than 60 percent of steelmakers are in the red and many small steelmakers are facing closure."

Where steel prices have plunged below costs, some mills are slashing output by up to 20 percent, with firms such as Baosteel and the China unit of South Korean steelmaker POSCO making particularly drastic production cuts.

Baoshan Iron & Steel Co Ltd, the country's second-largest steel producer, said its July-September net profit of 2.85 billion yuan fell short of analysts' forecast, and the company expected losses in key product areas in the fourth quarter.

Full-year profit in 2009 will also likely fall from this year, Chief Financial Officer Chen Ying said yesterday.

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In Tangshan, Hebei province, a center of China's steel industry, more than 60 percent of the local small mills have halted production, due to a combination of low demand and diving prices.

Hebei Iron and Steel Group, China's biggest steelmaker after the merger of Tangshan Iron and Steel and Hangang Co, also announced last week a further production cut of 10 to 20 percent on the original 20 percent cutback plan made in September.

Steel prices have dropped 30 to 40 percent since the end of June, while steel exports have also been hit.

In the first nine months, exports were 39 million tons, 5.18 tons less than the last year, a fall of 11.61 percent.

"Exports may be halved in October and the sharp decline will continue to March as the global financial crisis worsens," said Luo.

"The profitability of the steel industry is set to be lower in the fourth quarter to next March," agreed Guosen Securities in a report released yesterday.

In the first nine months, China's steel output hit 390 million tons, up 6.22 percent from the previous year.

"Total steel production this year will stand at 500 million tons," predicted Luo.