Giant steel firm facing toughest times

Quality inspectors register the serial numbers of cold rolled steel sheets at a Tangshan workshop of Hebei Iron & Steel Group Co Ltd in November last year. Hebei Iron & Steel plans to double annual revenue by the end of 2015 without adding any production capacity.[Photo/China Daily]

China's largest iron and steel group is determined to cut output and upgrade production as it copes with the toughest market conditions since 2008, said Kong Ping, the vice-president of Hebei Iron & Steel Group Co Ltd.

The iron and steel industry is in much worse shape than it was a year ago, with more excess capacity and bleaker financial conditions, he said.

A high debt ratio is also a threat for State-owned Hebei Iron and Steel, because the central bank may keep liquidity tight in the short term, according to Kong.

"The bottom line is to ensure our capital chain doesn't break in the short term," said Kong. "In order to maintain normal production, we will try any method to control costs."

The iron and steel giant, which was created through the June 2008 merger of Handan Iron & Steel Co Ltd and Tangshan Iron & Steel Co Ltd, said revenue fell 7.83 percent in the first quarter to 26.86 billion yuan ($4.38 billion). Net profit slid 87.82 percent to 43.8 million yuan.

Kong said there will soon be "a new round of mergers and acquisitions in the iron and steel industry".

Iron and steel supplies far outweigh demand. The industry's capacity utilization ratio is only 72 percent, said Kong. The global rule of thumb is that any industry with a capacity utilization ratio below 78 percent has excess capacity.

Ding Yue, an analyst at China International Capital Corp Ltd, said the industry's profitability in the second quarter probably worsened. Ding said losses will widen further in the third quarter, because the supply-demand gap is expanding.