Maanshan sees pinch on profits

PUBLISHED : Thursday, 24 March, 2011, 12:00am
UPDATED : Thursday, 24 March, 2011, 12:00am

Maanshan Iron and Steel says high material costs and oversupply will squeeze profit margins this year, although a revived economy, expanded domestic consumption and construction of the high-speed rail network are expected to boost demand.

The mainland's second-largest steelmaker saw net profit jump 180.74 per cent to 1.1 billion yuan (HK$1.3 billion) last year, but most of the growth came in the first half and net profit for the second half plunged nearly 95 per cent to 60 million yuan because of high iron ore and fuel prices and slowing demand from builders.

Company president Su Jiangang said 10 million budget housing flats to be built under the mainland's 12th five-year plan would help boost demand, although he was 'not optimistic' about the price outlook.

'The oversupply of iron and steel products is a longstanding problem and we tried to reach a deal [on pricing] with our iron ore suppliers. But it is difficult because demand and supply rule prices after all,' Su said.

Iron ore prices jumped to US$165 per tonne in the first two months of this year from an average US$128 last year, and the price of coal hit a record high of US$350 per tonne following last year's flooding in Australia.

The surge in material and fuel costs forced the group's gross profit margin down 0.18 percentage point to 5.36 per cent.

ICBC International Research revised its net profit forecast for the company to a decline of 19 and 24 per cent respectively for the full years of 2011 and 2012, despite forecast growth in gross earnings of 60 per cent and 28 per cent in the two years.

Su said Maanshan endeavoured to secure new suppliers or develop new iron ore mines overseas, but made no progress so far. It would continue to look for ways to enhance productivity, he said.

While Chinese steelmakers hoped to fill the supply shortfall after Japan's recent earthquake and that country's need for massive post-disaster reconstruction, Su expected benefits would be limited and in the short term. The company has so far received only two orders worth 48 million yuan from a Japanese steelmaker.

Maanshan hopes to increase production of pig iron, crude steel and steel products by between 4.2 per cent and 5.8 per cent in the coming year.

The company's share price fell 2.35 per cent to close at HK$4.15 yesterday. Basic earnings per share were 14.3 fen last year and a year-end cash dividend of 5 fen per share will be paid.

Solid start

Maanshan Iron and Steel saw net profit jump 180.7 per cent last year

Growth was mostly in the first half, as net profit slumped nearly 95 per cent in the second half to, in yuan: 60m yuan