Angang Steel

Furnace shutdown a threat to Angang output

PUBLISHED : Friday, 01 April, 2011, 12:00am
UPDATED : Friday, 01 April, 2011, 12:00am


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Angang Steel, the listed unit of one of the mainland's largest steel producers, may see its output fall for the first time in at least 11 years after one of its 10 blast furnaces was shut down due to safety issues.

The company's first-half profit this year is also expected to come under pressure from higher material costs.

Angang vice-chairman Chen Gang said yesterday the board originally planned for crude steel output to be flat this year from last year's 21.66 million tonnes, and steel product output to be flat from last year's 20.87 million tonnes.

'The actual output will now probably be less,' he said, adding that one of the firm's 10 blast furnaces responsible for a tenth of its capacity had been stopped for safety inspection.

'The problem is being investigated,' he added.

On Wednesday, the company unveiled a 174.6 per cent jump in net profit to 2.05 billion yuan (HK$2.4 billion) last year from 748 million yuan in 2009.

But the figure was lower than its 2.99 billion yuan earnings reported in 2008, 7.53 billion yuan in 2007 and 7.09 billion yuan in 2006. Gross profit margin rose to 7.1 per cent from 5.9 per cent in 2009.

Although steel products output grew 9.9 per cent and their average selling price grew 18.5 per cent last year to 4,288 yuan a tonne, the benefits were largely eroded by material cost rises totalling over 10 billion yuan, said executive director Fu Jihui.

The cost pressure continued into the first quarter of this year, when average spot market iron ore costs surged over 40 per cent year on year to around US$180 a tonne.

Product prices have been falling since March and Chen expects a recovery in the third quarter. Iron ore prices also started to fall slowly last month while coking coal costs remain high, he added.

With the first-quarter average product price standing at about 4,550 yuan, Chen said Angang was expected to turn in a profit for the quarter. It recorded a net loss of 720 million yuan in the second half of last year.

One of the factors contributing to Angang's cost pressure is the fact that parent Angang Group could not meet most of its iron ore requirements after its 6 million-tonne-a-year Bayuquan plant in Liaoning province came on stream in 2009.