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Global steel market put on notice as top China mill issues warning


THE top steel mill in China has issued a one-two warning about the outlook, saying it sees the twin risks of slowing demand and rising output in the country that accounts for half of global production. The shares sank.

Contraction in industries including property and vehicles will slow consumption this year, although infrastructure remains relatively robust, Baoshan Iron & Steel Co said in a statement as it reported record profit for 2018. Exports are set to drop amid global trade frictions while supply may expand, said the listed unit of China's biggest steelmaker, China Baowu Steel Group.

The mainland steel market sets the tone for conditions in the industry worldwide, with trends in demand, supply, pricing and exports carrying implications for mills around the globe. The downbeat outlook from Baosteel contrasts with a run of positive signals from Asia's biggest economy as first-quarter growth topped expectations, steel prices rebounded and mills' profitability improved. Still, it follows a surge in the cost of iron ore - used to make steel - which has rallied to multi-year highs on a supply squeeze.

The shift in the mill's outlook was captured in its earnings figures. While profit for 2018 hit a record 21.6 billion yuan (S$4.4 billion) - with earnings of about five billion yuan each quarter - net income in the first quarter of 2019 fell to 2.73 billion yuan, down 46 per cent, the mill said in a second statement.

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The slump in Baosteel's first-quarter earnings isn't surprising as elevated costs, including iron ore, pose a huge challenge, according to Helen Lau, an analyst with Argonaut Securities (Asia) Ltd. Steelmakers couldn't pass on the higher costs due to the weakening macro economic situation, she said.

Baosteel shares ended 4.4 per cent lower in Shanghai on Thursday, putting them on track for the biggest weekly drop since mid-2018. Over the past year, the stock is 22 per cent lower, although it remains higher year-to-date.

Full-year sales of steel products are expected to drop to 46.8 million tonnes in 2019 compared with 47.1 million tonnes in 2018, while revenue slides to 273.1 billion yuan from 305.2 billion yuan, Shanghai-based Baosteel said.

The mill also cited weakness in vehicles among drivers of slowing consumption in 2019. China's vehicles market shrank for the first time in almost three decades last year as the economy slowed and the trade war with the US hurt spending.

Nationwide steel supply faces pressure to increase as new facilities gradually come on line under a swap-programme with idled capacity, the producer said. China churned out 231 million tonnes between January and March, up almost 10 per cent from a year earlier and the highest for any first quarter on record. BLOOMBERG

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