Angang Steel to reduce exports as new levy eats into margins
Angang Steel, the listed arm of the mainland's second-largest steelmaker, plans to reduce its exports this year as new government policies have made them less profitable than domestic sales.
Exports were expected to account for 15 per cent of the company's output this year, compared with 20.8 per cent last year, director and company secretary Fu Jihui said yesterday.
The Anshan, Liaoning-based steelmaker increased production by 6.42 per cent to 14.93 million tonnes last year, of which 3.14 million tonnes was sold to overseas customers.
With a production target of 16 million tonnes this year, the firm expects to sell about 2.4 million tonnes in overseas markets, down 24 per cent from last year.
Prices for exported steel products are higher than on domestic sales, but a reduction in tax rebates and a new tariff on overseas sales aimed at curbing pollution and energy consumption have rendered exports less profitable.
Mr Fu said gross profit margin on exports dwindled to the same level as domestic sales last year and was 3 percentage points lower in the first quarter of this year. He did not give the exact figures.
Gross margin last year was 22 per cent, down 1 percentage point from 2006 because of rising raw materials costs. However, it rebounded to 24 per cent in the first quarter of this year.
Mr Fu declined to forecast this year's gross margin, but said Angang had raised product prices by more than 10 per cent in the second quarter, following an 11 per cent increase in the first quarter.
The average selling price of Angang's products rose 460 yuan (HK$512) to 4,689 yuan per tonne in the first quarter of this year from the previous quarter, but the increase was lower than a 500 yuan per tonne rise in raw materials costs, Mr Fu said.
'In the second quarter, product prices rose 10 per cent from the first quarter while raw materials costs were largely unchanged, so we believe the price rise can cover all the increases in costs,' he said.
Citigroup expects Angang's margins to deteriorate in the second half as a result of slowing demand and continued cost pressures.