China's top steelmakers bounce back to profit after price rally
Shanghai
CHINA'S top steelmakers posted gains in first-half profit as a surprise rebound in prices lifted earnings, with the biggest producer Hesteel Co Ltd recording its best six months since 2011.
Hesteel, the listed unit of China's biggest steel mill by output, said that net income in the six months through June rose to 409 million yuan (S$83.5 million), from 357 million yuan a year earlier and 216.5 million in the second half of 2015. Baoshan Iron & Steel Co Ltd, the listed unit of the No 2 producer, saw net income rise 9 per cent on the year to 3.47 billion yuan, after a net loss of 2.16 billion yuan in the second half.
China's steel market "gained some momentum" in the first half, helped by a range of factors including low inventory levels, Hesteel said. But the sector "remained on a downward trend, market demand didn't rebound significantly, and industry prospects are not optimistic", it added.
Mills and their suppliers across the globe have benefited from the recovery in China's steel market, the world's biggest, after Beijing boosted credit and infrastructure spending in the first half to halt a slowdown in growth. Margins at Chinese producers have swung from deeply negative in November to the best since 2009 in April, which has pushed the nation's output and exports to record levels. It's turned the raw materials iron ore and coal into this year's "hot commodities", Citigroup Inc said earlier this month.
The latest assessments from analysts suggest that conditions for China's mills may have peaked. Economic indicators are signalling sluggish growth for China's economy for the rest of the year, Citigroup said, while Li Xinchuang, vice-chairman of the China Iron & Steel Association, warned of significant declines in demand and output in coming months.
Baoshan's profit increased from a year earlier mainly because of cost cuts, and the supply and demand balance in China's steel market hasn't materially improved, the company said. Conditions will remain unfavourable in the second half, usually a weaker season for steel consumption in China, it said.
Neither Baoshan nor Hesteel gave updates on mergers being considered in China's fragmented, mostly state-run steel industry. Baoshan's parent is in restructuring talks with Wuhan Iron & Steel Group Corp, the companies said in June, while Hesteel's owner may join with Shougang Group, according to people familiar with the matter, earlier this month.
The combinations would create two powerhouse producers in the north and south of the country - the northern tie-up involving Hesteel would be the biggest in the global steel industry since the creation of ArcelorMittal last decade - and follow pledges by China's Communist Party to restructure and streamline the country's sprawling state-owned enterprises.
The average price of hot rolled coil, a benchmark steel product used in construction and consumer goods, surged as much as 62 per cent in the first half. It hit its peak in April before ending the six months 27 per cent higher at 2,537 yuan a tonne.
Hesteel, based in China's major steelmaking province of Hebei, said that revenue fell 11 per cent to 37.9 billion yuan. Baoshan's revenue fell 3.5 per cent from a year earlier to 78 billion yuan.
Of China's other top state-owned producers:
