First-half fi­nan­cial per­for­mance strong on back of sup­ply-side re­form

China Daily (Hong Kong) - - BUSINESS - By MENG FANBIN meng­fan­bin@chi­

China’s fer­rous metal in­dus­try is set to post a strong per­for­mance in the first half of the year on the back of gov­ern­ment mea­sures to cut over­ca­pac­ity and op­ti­mize the in­dus­try’s struc­ture, ex­perts said.

“With the re­duc­tion of ex­cess ca­pac­ity, there is a tight sup­ply of iron and steel, lead­ing to high prices, es­pe­cially wires and re­bars,” said Wang Guo­qing, re­search di­rec­tor at the Lange Steel In­for­ma­tion Re­search Cen­ter in Beijing.

The gov­ern­ment’s thrust on sup­ply-side re­forms has pro­duced pos­i­tives, Wang said.

Around 20 listed firms in the iron and steel sec­tor have fore­cast their earn­ings for the Jan­uary-June pe­riod.

HBIS Co Ltd said its first-half profit will likely be be­tween 1.15 bil­lion yuan ($148 mil­lion) and 1.27 bil­lion yuan, up 181-210 per­cent year-on-year.

If its fore­cast holds, that would be the third high­est growth rate in the 20 years since the com­pany listed on the A-share mar­ket.

Sim­i­larly, Fu­jian Sansteel Min­guang Co Ltd said it ex­pects its first-half profit to rise 200 per­cent year-on-year to 1.08 bil­lion yuan.

“The main rea­son (for the good per­for­mance) is the gov­ern­ment’s ef­forts to elim­i­nate out­dated ca­pac­ity, es­pe­cially in­fe­rior steel,” said Li Xinchuang, pres­i­dent of the China Me­tal­lur­gi­cal In­dus­try Plan­ning and Re­search In­sti­tute.

By June 30, China had shut all com­pa­nies that pro­duce in­fe­rior steel. More than 500 such com­pa­nies whose com­bined ca­pac­ity was 119 mil­lion met­ric tons were shut, ac­cord­ing to a state­ment from the China Iron and Steel As­so­ci­a­tion.

On Thurs­day, the Lange Steel Com­pos­ite Steel Price In­dex reached 144.9, up 7.4 per­cent from the be­gin­ning of the year.

The Long Steel Prod­ucts Price In­dex was at 159.8, up al­most 19 per­cent from early Jan­uary. The Flat Steel Prod- ucts Price In­dex, how­ever, was down al­most 3 per­cent at 131.9.

Long steel prod­ucts in­clude re­bars and wires, and flat plate steel prod­ucts are hotrolled steel plates, cool-rolled plates and medium plates.

The re­bar price is 3, 928 yuan per ton, up by 676 yuan from the be­gin­ning of the year.

“Al­though data show that the to­tal steel out­put has in­creased in the Jan­uary-June pe­riod, the de­mand has shifted from in­for­mal prod­ucts such as in­fe­rior steel to qual­i­fied steel made by ma­jor steel com­pa­nies. That means, the sup­ply is not ad­e­quate to meet the cur­rent de­mand,” said Wang.

At the same time, iron ore prices are com­par­a­tively low thanks to ris­ing out­put, over­sup­ply, and high port in­ven­to­ries, Wang said. “Low ma­te­rial prices help keep steel pro­duc­tion costs at rel­a­tively low lev­els.”

China im­ported 539 mil­lion tons of iron ore in the first half, up 9.3 per­cent year-on-year, while the coun­try’s iron ore pro­duc­tion was 508 mil­lion tons in the first five months, up 10.4 per­cent, ac­cord­ing to data from the Lange Steel Cloud Plat­form. Low costs and high prices are ex­pected to boost com­pa­nies’ prof­its.

Li said ris­ing in­fra­struc­ture in­vest­ment, au­to­mo­bile pro­duc­tion and ma­chin­ery man­u­fac­tur­ing in the first half of the year will also likely ex­pand steel con­sump­tion.

To­tal profit of ma­jor iron and steel com­pa­nies was 37.9 bil­lion yuan in the first five months of this year, ex­ceed­ing full-year com­bined profit of 33.15 bil­lion yuan in 2016, ac­cord­ing to the China Iron and Steel In­dus­try As­so­ci­a­tion.

Ac­cord­ing to the Na­tional Bureau of Sta­tis­tics, the Jan­uary-May op­er­at­ing in­come of the fer­rous metal smelt­ing and rolling process in­dus­try was 3.02 tril­lion yuan that gen­er­ated a profit of 105.3 bil­lion yuan, up 93.5 per­cent year-on-year.

Gan Yong, pres­i­dent of the Chi­nese So­ci­ety for Met­als, how­ever, said over­ca­pac­ity re­duc­tion should be con­tin­ued with the same level of de­ter­mi­na­tion in spite of the cur­rent prof­its. “Once the com­pa­nies in­crease their out­put pro­duc­tion, prices will de­cline im­me­di­ately.”


Work­ers op­er­ate at a steel plant in Dalian, Liaon­ing prov­ince.

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