2010-08-31 10:50

Steelmaker warns of lower numbers for third quarter

SHANGHAI - Baoshan Iron & Steel Co (Baoshan Steel), China's biggest publicly traded steelmaker, may report its smallest profit in the past five quarters as demand slows and high prices of raw materials erode margins.

A visitor walks past a Baoshan Steel booth at the China International Industry Fair in Shanghai. [Photo/China Daily]

Baoshan Steel may have a profit of between 800 million yuan ($118 million) to 1.6 billion yuan in the three months ending Sept 30, according to figures derived from the company's projected nine-month profit on Monday.

That would be the smallest profit since the quarter ended June in 2009.

Steel prices in China fell as much as 17 percent from April as the government introduced measures to curb property speculation.

Slowing demand led about 40 percent of steelmakers in the country to idle plants or put them on maintenance, the China Iron and Steel Association said Aug 3.

"China's gross domestic product is likely to trough in the second half, forcing steelmakers to post the worst result of the year in the third quarter," said Luo Wei, a Shanghai-based analyst with China International Capital Corp (CICC). "Fourth-quarter earnings may rebound after iron ore prices decline."

The company faces a "double squeeze" as demand from makers of automobiles, appliances and machinery slows, and iron ore prices stay high, Baoshan Steel said in the statement. The company plans annual maintenance for major production lines, it said, without giving details.

First-half profit surged to 8.05 billion yuan, or 0.46 yuan a share, from 669 million yuan, or 0.04 yuan, a year ago, the company said on Monday in its interim report. A Bloomberg survey of eight analysts forecast mean earnings per share of 0.408 yuan.

Baoshan Steel forecast its nine-month profit may rise 140 percent to 160 percent from a year ago, the statement said, without elaborating. Yu Hong, an investor relations official at Baoshan Steel, said the profit will be 2.4 times to 2.6 times the nine-month earnings of a year ago.

Based on last year's profit of 3.7 billion yuan for the first nine months, the company is flagging income of 8.9 billion yuan to 9.6 billion yuan for the same period this year. Chinese mills face a "difficult" second half, Xu Lejiang, chairman of Baosteel Group Corp, Baoshan's parent, said on June 8.

Angang Steel Co may post a loss in the third quarter after prices fell and raw-material prices gained, according to figures derived from the company's nine-month profit projection this month. That would be a loss for the first time in five quarters.

Chinese steel prices fell 17 percent to 3,888 yuan a ton on July 14, from 4,698 yuan on April 15, according to Beijing Antaike Information Development Co.

Prices fell 1.9 percent this week, the first decline in six weeks.

Bloomberg News