The mainland steel industry, the world's largest, reported a 29.1 billion yuan (HK$33.01 billion) loss in December, its third consecutive money-losing month, bringing total losses in the fourth quarter to 47.7 billion yuan as steelmakers wrote down the value of inventories.
Analysts said the situation would improve this quarter because steel prices in the country had been rising for the past 80 days and the destocking of steelmakers was almost finished. Presumably, they will not need to make hefty provisions against inventory at the end of March.
The combined losses of 71 large and medium-sized steel mills more than doubled to 29.1 billion yuan in December from 12.77 billion yuan in November, China Securities News reported yesterday, citing figures from the China Iron and Steel Association.
Losses were 5.84 billion yuan in October, when the industry registered its first monthly loss in six years.
Forty-four mills recorded losses and some leading steelmakers even reported losing more than 10 billion yuan in December, especially those focused on producing flat steel products, said the newspaper, citing officials from the association.
According to Xu Xiangchun, the chief information officer of steel data provider Beijing Ganglian Maidi e-Commerce, the whole industry still recorded 85 billion yuan in profit for last year.
This came despite the huge loss in the fourth quarter, but the gain was 41 per cent lower than the 144.7 billion yuan profit in 2007.
As of February 1, 19 mainland-listed steelmakers warned of losses or at least a substantial plunge in net profit last year, the result of falling steel prices and provisions made against inventories.
But analysts said the situation was improving as latest economic data suggested Beijing's economic stimulus package was taking effect.
UOB Kay Hian said mainland spot steel prices gained between 2 per cent and 5 per cent this week following the Lunar New Year as Baosteel Group, the mainland's top steelmaker, raised March prices before the holiday.
The ongoing strength in steel prices was due to a moderate month-on-month improvement in order books last month from traders and, to some extent, end-users, it said.
This was confirmed by the country's purchasing managers' index, which rose to 45.3 in January from 41.2 a month earlier, suggesting a bottom in the contraction in manufacturing. Daily production of the steel industry also increased to an average of 1.29 million tonnes in January from 1.22 million tonnes in December.
Destocking and rising prices lift outlook for the first quarter
The total loss of 71 large and medium-sized mills in December was, in yuan: 29.1b yuan