Steel Firms Hit by Glut, in the Red

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Post Date: 25 Apr 2009    Viewed: 978

Chinese steel makers reported a combined loss of 3.3 billion yuan for the first quarter of 2009 as oversupply put pressure on product prices, the China Iron and Steel Association (CISA) said.

The loss is in sharp contrast to the 47.16 billion yuan in profits the industry made during the same period last year. The losses in March alone stood at 1.79 billion yuan, exceeding the first two months' total losses of 1.51 billion yuan, CISA Vice-President Luo Bingsheng said.

Luo attributed the losses to increased steel output in the first quarter. He said the oversupply had driven steel prices below the 1994 level.

"Steel exports fell 50 percent year-on-year, to 5.14 million tons in the first quarter. Steel for export was sold in the domestic market, which played a big role in the supply increase," he said.

The results of major steel mills come at a time when the industry, led by Baosteel, is in talks with the Big Three international miners, Rio Tinto, BHP and Vale, on benchmark prices of ore for the fiscal year starting April 1.

During the first quarter of this year, 20 out of 72 large- and medium-sized steel makers plunged into the red, accounting for 34 percent of the total, CISA said.

Crude steel output touched 124.7 million tons in the first quarter, up 1.74 million tons from a year ago.

Daily output stood at 1.41 million tons, equivalent to 517 million tons for the whole year, and much higher than the annual goal of 460 million tons.

Wang Zhaohua, an analyst at Guodu Securities, said the output of smaller steel mills has increased in recent months due to lower prices in the cash market where iron ore prices have dropped by 40 percent from last year.

He said the industry was likely to show signs of recovery from the second quarter of this year.

Meanwhile, in a separate development, Weiyi Stainless Steel, a medium-sized private steel maker based in Jinhua, Zhejiang province, filed for bankruptcy earlier this week, partly due to falling steel prices.

The e-commerce website HC360.com yesterday quoted an unidentified Weiyi executive as saying that the company's steel stock was worth 200 million yuan before prices began falling sharply since June 2008.