Baoshan Steel Says First-Half Profit Plunges 93%

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30 Aug 2009

Baoshan Iron & Steel Co., China’s biggest steelmaker, said first-half profit plunged 93 percent because an economic slowdown curbed demand from automakers and shipbuilders. Net income fell to 669 million yuan ($98 million), or 0.04 yuan a share, for the six months ended June 30, from 9.26 billion yuan, or 0.53 yuan, a year ago, the Shanghai-based company said today in a statement to the Shanghai stock exchange. The mean estimate of five analysts compiled by Bloomberg was for earnings per share of 0.029 yuan.
China’s steel industry posted seven-straight months of losses starting October as prices dropped to 1994 levels. Prices have revived as expanding credit and the government’s 4 trillion yuan stimulus package fueled a building boom and car purchases.
“The stimulus policy-driven demand for steel will rise steadily in the second half,” Liu Junqing, an analyst at Taiyuan-based Shanxi Securities Co., said before the announcement. “Steel prices will creep up.”
Baoshan Steel has risen 49 percent this year, compared with a 57 percent gain in the benchmark Shanghai Composite Index. The stock fell 3.8 percent to close at 6.90 yuan before the announcement.
‘Uncertainties’
Sales fell to 65.5 billion yuan in the first six months from 103.4 billion yuan a year ago.
China’s monthly steel output reached records for three straight months this year, and prices have jumped 21 percent since the government announced the stimulus package in November. Baoshan Steel has increased prices for three months since July.
“Because the global economy hasn’t recovered substantially and the foundations for a domestic recovery aren’t solid, there are some uncertainties as to whether the steel industry climate would keep improving,” Baoshan, the listed unit of the world’s third-largest mill, said in the statement today.
Nine-month profits would fall significantly from a year ago, the statement said, without giving any details.
Credit Suisse Group AG raised its annual earnings estimate for Baoshan 53 percent to 7.2 billion yuan on Aug. 7, and predicted a second-half profit of almost 7 billion yuan. It had expected a first-half income of 186 million yuan.
Price Increases
Baoshan has a 50 percent share of the domestic cold-rolled automobile steel market and 37 percent of appliance steel, Donghai Securities Co.’s analyst Wu Peiwen said in a July 30 note. The company’s cold-rolling production reached record levels in the second quarter, Wu wrote.
“Baoshan, as the nation’s No.1 producer of automobile sheets and appliance sheets, will benefit the most from the fast developments of the two industries,” Wu wrote in the note. “The impact of price hikes will raise the company’s profits in the third quarter.”
Baosteel Group Corp., the parent of Baoshan, is struggling to meet “explosive” demand from automobile and home-appliance makers and has pushed production to near-record levels, JPMorgan Chase & Co. said Aug. 7.
China’s industrial output rose 10.8 percent in July from a year earlier, the National Bureau of Statistics said Aug 11. Car sales soared 70.5 percent, the biggest jump since January 2006.

Source: Bloomberg