Many Chinese steel mills return a profit in October

China’s steel companies made a total profit of RMB 91bn (US$14.28bn) in the first three quarters 2012, a drop of 54.3% year on year. A key reason behind the sharp fall in profit is China’s slowing economic growth, which fell for the seventh consecutive quarter to 7.4% in the July- September period.

The steel industry has also been struggling with overcapacity in recent years, a problem that has further squeezed the industry’s profit margins. China’s steel production, however, rebounded in late November after major steelmakers turned losses into profits in October.

According to the latest data released by the China Iron and Steel Association (CISA), daily output of crude steel is estimated at 1.9599Mt during the November 21-30 period, up 0.42% from the previous 10 days. Statistics also show that daily crude steel output of member steelmakers of CISA, namely the 76 large and medium-sized steel mills in the country, reached 1.64Mt in last ten days of November, up 0.4% from the November 11-20 period.

These 76 large and medium-sized steel mills closely monitored by CISA earned RMB 307M ($48.18M) in profits in October, ending the losses for four consecutive months since June. According to CISA, sales revenue of these steel mills increased 2.55% from a year earlier to RMB 297.4bn ($46.68bn) in October. 26.25% of steel mills incurred losses in October, down from 52.5% in September. The number of steel mills making losses decreased to 21 in October.

The industry’s output continued growing after the sector turned losses into profit in October, but this may pose pressure to the long-standing over-capacity problem of the sector and the demand-supply issues may be aggravated in the traditionally off-season during December.

Market demand stayed sluggish, though market sentiment has been boosted by the pro-growth measures rolled out by the government.

While fundamentals of the market remained weak in the first 9- months 2012, and steel prices hardly picked up, China’s steel industry is expecting to face a better situation in Q4 and for the entire of 2013 after posting large losses in the first three quarters 2013.

Data from the CISA showed Chinese steel companies posted total losses of RMB 5.5bn ($863M) from January to September 2012, compared with total profits of RMB38.7bn ($6.07bn) in the same period 2011.

Source: China Metals e-mail infochn@public.bta.net.cn