Steel sector held back by lack of stimulus

PUBLISHED : Wednesday, 19 June, 2013, 12:00am
UPDATED : Wednesday, 19 June, 2013, 5:24am


The mainland's steel, iron ore and coking coal industries remain in the doldrums with an uncertain outlook as there is no sign Beijing will launch economic stimulus policies, according to a senior official of a firm involved in all three sectors.

"The entire industry chain is in a depressed state," said Shougang Concord International Enterprises managing director Li Shaofeng after the firm's annual shareholders meeting. It is one of six listed units of mainland steel major Shougang Corporation.

"The central government has not launched any apparent policies to stimulate the economy, so the steel industry is still in a wait-and-see mode," he said. "There is not much improvement and funding pressure remains a big problem for steel enterprises."

Li said average year-to-date steel prices are similar to those of last year's fourth quarter - an extension of the trough in the current down-cycle that began from last year's first quarter. Small recoveries in prices in this year's first quarter were offset by falls in the second quarter.

Steel raw materials have also been hit, with prices of iron ore and coking coal trading about 40 per cent below last year's peaks.

Shougang Concord last year sank into a net loss of 1.95 billion yuan (HK$2.46 billion), from a profit of 152 million yuan in 2011. Li said it will be difficult to turn a profit this year. All four business segments - steel production, shipping, iron-ore trading and iron-ore mining - recorded operating losses last year.

Production of steel slabs and heavy plates - used mainly in shipbuilding, petrochemical and industrial machinery industries - accounted for 65 per cent of total revenues last year. The company's net debt amounted to 113 per cent of its shareholders' equity as of the end of last year.

Its 27.6 per cent-owned Hong Kong-listed coking coal producer Shougang Fushan Resources Group posted a net profit of 1.8 billion yuan, down 20 per cent from 2011.

Li said Shougang Corporation will consider consolidating the steel-related businesses among its six listed units - five in Hong Kong and one in Shenzhen. They include three Hong Kong units - Shougang Concord, Shougang Fushan, and steel cord producer Shougang Concord Century Holdings - and Shenzhen-listed steel smelter and processor Beijing Shougang.