Latest figures show continued struggle for steel industry

Updated: 2013-05-15 05:30

By Du Juan (China Daily)

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China's steel industry continued to suffer from weak demand and thin profits during the first quarter, and the situation could continue for the rest of the year as prices keep falling.

The latest data from the China Iron and Steel Association show that the profit margin across the domestic steel industry dropped to 0.9 percent, delivering collective industry profits of 2.5 billion yuan ($406 million) for the quarter.

Xue Heping, an expert with the association, said the profit level was too small for an industry with total assets worth 4.3 trillion yuan.

Thirty of the country's 86 large and medium-scale steel companies reported losses in the first quarter, five fewer than the same period last year, the association's figures showed.

The loss-making companies reported a total loss of 6.1 billion yuan during the period, against losses of 9.4 billion yuan at the same stage in 2012.

Although the number of steel companies in the red is less than during the same period last year, Xue said that it did not mean the industry was likely to improve in months to come.

"Although the industry performed better than in the same period last year, it is still questionable whether they can even maintain these low profit levels."

During the quarter, the inventories of the 86 large and medium-scale steel companies reached 583.1 billion yuan, 10.2 billion yuan higher than the same period last year, which puts increased pressure on their sales and marketing operations to clear the growing stockpiles.

"There is still a lot of future uncertainty for steel companies," said Xue, as the industry enters what he called a high-risk period, saddled with high levels of debt.

According to the association, the total debts of 86 major steel companies had reached 2.98 trillion yuan by the end of March, 188.9 billion yuan more than at the same period last year.

The debt-to-asset ratio of the industry has reached about 70 percent, a difficult situation for the industry.

"Meanwhile, management, financial and marketing costs have also risen as the market continues to worsen," said Xue.

He predicted losses are likely to continue in April and May as the price of steel keeps on falling to its lowest level in five years, with some major producers having to adjust their product prices to maintain or boost market share.

On Monday, Wuhan Iron and Steel Group, one of the country's major steel producers, cut the price of its hot-rolled steel by 180 yuan a ton and cold-rolled steel by 100 yuan a ton.

In major steel trading cities, the current price of hot-rolled steel is 3,600 yuan per ton.

"The steel price adjustments being made by major producers reflect an ongoing weak market," said Lu Huaying, a steel industry analyst with price monitoring service Lange Steel Information Research Center.

Over the past year, China's major steel companies which account for 80 percent of the country's total output have recorded overall profits of 1.58 billion yuan, a 98.22 percent year-on-year drop, according to the association.

Up to 23 of its major member companies reported annual losses last year, 15 more than the previous year, totaling 28.9 billion yuan, around seven times higher than in 2011.

(China Daily 05/15/2013 page15)