Posted on 03 Nov 2015
Anemic demand and excess supply in China have sent the global steel market into a severe slump, weighing heavily on earnings at steelmakers throughout Asia.
Baoshan Iron & Steel has reported a 900 million yuan ($142 million) net loss for the July-September period, marking its first quarter in the red since the final three months of 2012.
The Chinese steel industry is going through a particularly rough patch, Baosteel President Dai Zhihao told investors. Steel product prices have plunged as demand has fallen off. As a result, the industry logged an overall loss of 25 billion yuan for the January-September period, Dai said. He took a dim view of the future as well, saying he expects the worst of the slump to come a year or two after 2015.
Baosteel’s sales for the quarter slid 9.9% year on year to 41.5 billion yuan as lower demand ate into sales volume. Higher financing costs due to a softer yuan contributed to a 1.5 billion yuan operating loss, compared with the 2.2 billion yuan profit of a year earlier.
Baosteel is not the only steelmaker struggling in China. Maanshan Iron & Steel booked sales of 11.2 billion yuan, a 27.6% drop, and an operating loss of 1.5 billion yuan, down from the year-earlier 400 million yuan profit. Hebei Iron & Steel saw sales tumble 24.9% but logged an operating profit of just over 100 million yuan through cost-cutting.
China’s crude steel output totaled 822.7 million tons in 2014, official data shows — more than seven times the Japanese figure. Output for the nine months through September declined 2.1% on the year to 609 million tons. Demand appears to have fallen faster than production, sparking price wars as steelmakers fight to secure sales volume.
Weak domestic demand has led to a flood of Chinese steel inundating foreign markets. China’s steel exports surged from 62 million tons in 2013 to an all-time high of more than 94 million tons in 2014. This year’s total is expected to top 100 million tons, in the neighborhood of Japan’s fiscal 2014 crude steel output of 110 million tons. The average export price of Chinese steel sank more than 20% on the year to around $620 a ton in the half ended June.
This seems to be hurting market conditions, and thus steelmakers’ earnings, in countries importing Chinese steel as well. South Korean giant Posco logged a group net loss of 658.2 billion won ($577 million) for the July-September quarter, compared with a 224 billion won profit a year earlier, owing in part to exchange losses stemming from the won’s weakness. Sales fell 14% to 13.99 trillion won.
Japanese steelmakers had been viewed as relatively competitive thanks to their edge in high-value-added products, but they have not been left unscathed. April-September operating profit slid 27% at Nippon Steel & Sumitomo Metal and 40% at JFE Holdings.
Baosteel started up a Guangdong Province mill with an annual capacity of around 10 million tons this September. The supply glut is not improving, and views differ on whether demand will rebound in China and elsewhere. The drop in Chinese steel prices has slowed of late, and the market is at a bottom, a Posco executive said. But Katsuhiko Ota, an executive vice president at Nippon Steel, said he expects the industry’s woes to continue.
