SHANGHAI - Boosted by rising sales and prices, Wuhan Iron and Steel Co Ltd, China's third-largest steel maker by production, registered net profit growth of 12.46 percent year-on-year to 1.7 billion yuan ($260 million) in 2010. Meanwhile, net profit rose 111 percent to 608 million yuan in the first quarter of 2011.

Although the rising cost of raw materials may erode the company's performance in 2011, its strength in the production of silicon steel will guarantee a solid performance this year, analysts said on Monday.

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The company, which is listed on the Shanghai Stock Exchange, reported on Sunday that revenue soared 40.74 percent to 75.6 billion yuan in the 2010 fiscal year.

According to its report, the Hubei province-based steel maker had revenue of 21 billion yuan in the first three months of 2011, up 26 percent from the same period in 2010.

The company said the improved steel market prompted a substantial increase in revenue in 2010, but the rising costs of raw materials and production had impaired profits.

Liu Yuanrui, an analyst at Changjiang Securities, said Wuhan Iron and Steel is in the process of recovery and is expected to outperform last year's results in 2011.

However, uncertainty caused by the rising costs of raw materials and labor could undermine the recovery effort. In addition, excess capacity will make the industry less profitable.

The average profit margin for China's medium-sized and large steel makers was 2.91 percent in 2010, much lower than the average industrial profit margin of 6.2 percent, according to data released by the Ministry of Industry and Information Technology.

"Average profit has seen a substantial decline since 2007's 7.6 percent year-on-year, and the major reason for the reduced profit margin is the soaring price of iron ore," said Hou Zhiyun, the head of research at the Beijing Lange Steel Information Research Center.

Zhang Tieshan, an analyst at the website Mysteel.com, told China Daily that Wuhan Iron and Steel should perform better in 2011 because of its expertise in the production of silicon steel, which usually contributes about two-thirds of its overall profit.

According to Zhang, Wuhan Iron and Steel raised the price for its grain-oriented electrical steel by 1,500 yuan a ton for May, a rise of almost 5 percent. Wuhan Iron and Steel is one of the few companies capable of producing that form of steel.

"This is partly because production from Japan, the world's largest producer of silicon steel, has been affected by the devastating earthquake in March. China is the world's second-largest maker of silicon steel, and nearly half of the production comes from Wuhan Iron and Steel," said Zhang.

China Daily

(China Daily 04/26/2011 page16)