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November 5th, 2009
- General
Beijing China - Chinese steel mills rebound stalls on overcapacity created by the nation CNY 4 trillion stimulus spending.
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Baoshan Iron & Steel Co and Angang Steel Co are both posting the best quarterly profits in at least a year but are now facing slower growth as oversupply in the world largest steel producing nation put pressure on prices. Baoshan China’s largest mill said demand is easing amid rising pressure from overcapacity. Angang Steel Co said on October 27th that earnings this quarter will be less than net income in the past three months. Benchmark Chinese steel prices have fallen 21% from a 10 month high on August 4th as production overwhelmed demand fueled by the nation CNY 4 trillion stimulus spending. Steel output in China reached highs in four months this year spurring record imports of iron ore from producers such as Rio Tinto Group and Vale SA.
The severe overcapacity creates cutthroat competition among Chinese steelmakers, giving them little pricing power. There is stillgood steel demand but prices are bad because of the excess competition.”
The nation’s industry ministry said steel inventories held by large Chinese companies rose 10% this year to 7.2 million tonnes as at the end of September. BHP Billiton Ltd the world largest mining company said it was seeing signs of a pullback in commodity demand from China.
According to local analysts Shanghai based Baoshan Steel may post earnings that are down 24% in Q4 from the three months ended September 30th when Baoshan’s quarterly profit was its highest in five quarters.
Baoshan Steel said in its statement “There is rising pressure from overcapacity and demand growth is slowing down. Steel inventories are at high levels. Demand is weak for steel pipes and heavy plates in the fourth quarter.”
Angang Steel may report a profit of as much as CNY 1.17 billion or lose as much as CNY 330 million in the three months ending December 31st based on figures derived from a range of full year forecasts. Q3 net income was CNY 1.89 billion the highest in a year.
Mr Deng Qilin chairman of the steel association said the Chinese government is working on plans to close obsolete mills and promote mergers. Some mills have incurred losses at current prices which won’t rebound this year.
Baoshan has cut monthly prices twice since September. Hebei Iron & Steel Group, China’s second-biggest mill, and Jiangsu Shagang Group Co. have also dropped prices.
Jiangsu Shagang the nation fifth largest mill said this month Chinese steelmakers will be forced to cut output for the rest of the year. Steel demand growth in China may slow to 5% next year down from an expected 19%% this year.
The steel mills are still seeing strong demand from builders and makers of cars and appliances. Baoshan and Angang have orders covering 100% of capacity to the end of the year.
The National Development and Reform Commission said last month that Volkswagen AG, the biggest overseas carmaker in China sold a record number of vehicles in September in the country. The Asian nation may boost sales 28 percent to 12 million units.
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