Major steel companies see strong Nov profits

China's 80 largest steel makers generated a profit of 3.28 billion yuan ($526.42 million) in November.

But oversupply and a string of unprofitable months caused their revenue for the year to remain in the red up to that month, analysts said.

Statistics from the China Iron and Steel Association showed that major Chinese steel firms returned to reporting profits in November after bringing a four-month series of losses to an end a month earlier.

In the first 11 months of last year, the 80 major steel makers posted a loss of 1.97 billion yuan, Wang Qinghai, chairman of the association, said during a meeting on Saturday.

Chinese steel makers made meager profits in March, April and May and reported losses in the following months, only improving their performance in the fourth quarter.

Throughout 2012, Chinese steel makers' capital chain continued to worsen as financing costs increased, Wang said.

From January to November, members of the China Iron and Steel Association saw their revenue fall by 5.37 percent year-on-year, while their loans increased by 6.58 percent and their financial costs by 24.38 percent, Wang said.

"The asset-to-liability ratio of the member companies had increased by about 1.64 percentage points year-on-year to 68.67 percent by the end of November," Wang said.

Analysts said they expected the steel industry to extend its good performance into December, but were pessimistic the industry would report a profit for the whole year.

"Many of our clients have complained that they can hardly make a profit by making steel," said Zhu Xi'an, analyst from the steel information provider mysteel.com. "And the price of steel isn't keeping up with the soaring price of iron ore. They're worried the cost of raw materials will increase further and eat up their profits."

Xu Guangjian, an analyst from Umetal.com, another steel information website, said the price of iron ore went from $118 a ton to $155.75 a ton from Dec 3 to Friday, an increase of 32 percent. The price of steel went up by only 9.9 percent during the same period.

"Most steel companies are just breaking even," Xu said. "The price of iron ore continues to be high and there is no strong demand originating from downstream industries such as the property, electric home appliance and automobile industries."

Despite the trying times for the industry, only a few steel mills have shut down their operations. Yet for the majority of small steel enterprises, to continue operating, they have either had to be merged or incorporated into large steel makers, Zhu said.

As a result, the nation's steel output has increased continuously in recent years, even as the growth in demand for the metal began to slow.

Wang estimated that China produced 720 million metric tons of steel in 2012, compared with 683 million tons in 2011, according to China Central Television.

And even as the output numbers rise, China is using less steel, Wang said.

Analysts said the steel industry's profits will continue to be small for a long time.

"The biggest iron ore suppliers have too much say," Xu said. "They will raise iron ore prices immediately when steel companies raise the price of their products."

Pressed by the rising price of iron ore, Baoshan Iron and Steel Co Ltd, or Baosteel, the country's largest listed steel maker, decided on Monday to raise the ex-factory price for February delivery of its main products.

The increases seen in the prices of upstream raw materials and of spot steel products have together contributed to the latest price increases, said Hu Yanping, steel analyst with custeel.com, a provider of data on metals.

Hu said she believes other steel mills will soon follow Baosteel's lead on prices.

wang_ying@chinadaily.com.cn

(China Daily 01/08/2013 page15)