Bloomberg News

Baoshan Steel Profit Falls to 2 1/2-Year Low on Weak Auto Demand

March 30, 2012

Baoshan Iron & Steel Co. (600019), China’s biggest publicly traded steelmaker, posted its lowest quarterly profit in more than two years amid high iron ore prices and slowing demand from automakers and builders.

Net income fell 55 percent to 1.04 billion yuan ($165 million) in the fourth quarter ended Dec. 31 from 2.29 billion yuan a year earlier, based on Baoshan’s full-year earnings reported today in Shanghai. The profit is the lowest since the second quarter of 2009, according to data compiled by Bloomberg.

Baoshan, which supplies half of China’s automobile steel market, is facing slowing demand after the government last year halted incentives and imposed restrictions on vehicle purchases to reduce traffic. Steelmakers in China, the world’s biggest producer, incurred a combined loss in the fourth quarter as tighter credit and housing curbs reined in consumption, according to the China Iron and Steel Association.

“We see moderate recovery in steel demand and stable iron ore prices this year,” Sarah Wang, an analyst with Masterlink Securities Corp. (2856) in Shanghai, said before the earnings announcement. “It can’t be worse than the fourth quarter for the steelmakers.”

Full-year profit fell 43 percent to 7.36 billion yuan, Baoshan said. The company had announced a preliminary profit of 7.3 billion yuan on Jan. 13.

Baoshan advanced 0.4 percent to close at 4.77 yuan before the earnings announcement, compared with the 0.5 percent gain in the benchmark Shanghai Composite Index.

Falling Demand

“Steel demand dropped drastically in 2011, further squeezing profits as prices of raw materials, including iron ore, steel scraps and coke continued climbing,” Baoshan said in the statement. “We’ll focus on the development of high-quality carbon steel products and strengthen cost management to make sure that we remain the best-performing company in the domestic steel industry.”

Imported iron ore prices gained 28 percent last year from a year ago, Baoshan said.

Premier Wen Jiabao pared China’s annual economic growth target to 7.5 percent this month, compared with a goal of 8 percent over the past seven years, to lessen reliance on investment and exports and increase the role of domestic consumption. That shift is slowing steel production growth, said BHP Billiton Ltd. (BHP), the world’s third-biggest iron ore exporter.

Short of Target

China’s vehicle sales this year will probably miss their 8 percent growth forecast as the slowing economy and rising fuel costs curb buying, Gu Xianghua, deputy secretary general of the China Association of Automobile Manufacturers, said March 20. Total vehicle deliveries may fail to increase by even 5 percent, he said.

Still, Baosteel Group Corp., Baoshan’s state-owned parent, expects that the government’s efforts to encourage spending may boost China’s car sales this year, spurring demand for automobile steel to rise faster than last year, Baosteel Chairman Xu Lejiang said March 5.

Baoshan aims to complete on April 1 the sale of its unprofitable stainless steel and specialty steel units to its parent for 45.2 billion yuan, in a move to boost profitability, it said today.

The stainless steel unit, China’s second-biggest producer of the rust-proof alloy, had a loss of 1.1 billion yuan last year and the special steel unit incurred a loss of 531 million yuan, Baoshan said last month.

“The proposed plan to spin off the stainless steel sector is also good news to investors,” Masterlink’s Wang said.

Baoshan aims to sell 24.25 million metric tons of steel products this year, down from 25.8 million tons in 2011, the company said today. Revenue is expected to decline to 216 billion yuan from 222.9 billion yuan, Baoshan said.

To contact Bloomberg News staff for this story: Helen Yuan in Shanghai at hyuan@bloomberg.net

To contact the editor responsible for this story: Rebecca Keenan at rkeenan5@bloomberg.net


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