New | China's steel and iron ore miners face dull prospects
Losing their glowAlthough the mainland steel mills are outperforming the iron ore miners, prospects for the two sectors are not bright as the economy shifts focus
The profit outlook for the mainland's steel sector is showing signs of improvement as capacity expansion slows and inventories and raw material costs fall, but iron ore miners, battling a flood of overseas imports, have yet to see light at the end of the tunnel.
But for years to come, the two overcapacity-plagued industries are unlikely to see the kind of profits they were making during the mainland's fixed-asset construction boom and iron ore shortage between 2005 and 2008, with a gradual shift from an investment-led economic model to a consumption-led one slowing growth in demand for steel.
The China Iron and Steel Association, which represents the nation's largest steel mills, says its members' pre-tax profits rose 51.6 per cent in the first 11 months of last year to 24.4 billion yuan (HK$30.3 billion).
The combined net profit of Hebei Iron and Steel, Baoshan Iron & Steel and Angang Steel, three of the nation's largest steelmakers, is forecast to have climbed 31 per cent last year to 8.8 billion yuan and might rise a further 23 per cent this year to 10.9 billion yuan, according to analysts polled by Thomson Reuters.
Baoshan alone accounted for 36 per cent of the total profits made by medium-sized to large steel mills, despite having only 5 per cent of the industry's revenue, according to a JP Morgan report.
The improvement in steel producers' performance after a couple of years of weak profit and losses was primarily driven by lower raw material prices.