Fitch bearish on metals and mining

PUBLISHED : Wednesday, 11 December, 2013, 5:05am
UPDATED : Wednesday, 11 December, 2013, 5:05am

Mainland metals and mining companies are constrained by uncertain long-term growth prospects because of a lack of supply discipline and slowing demand growth, Fitch Ratings said.

The credit agency said in a report that the outlook for the metals and mining sectors was negative. "As China shifts from an investment-driven economy towards a more consumer-led one, long-term demand growth for metals is expected to slow," it said.

Coupled with persistent overcapacity in the steel and aluminium sectors, metal prices would continue to be constrained in the near term, the report said.

While poor profitability and government policies have deterred some capacity expansions, it will take a long time for real corrections to take place.

Wang Guoqing, a researcher at Lange Steel Information Research Centre, said the profit margin of steel enterprises was low because of excess supply.

"The past year has been the worst over the past 10 years," Wang said. "Net profit margin was just 0.04 per cent, according to data from the China Iron and Steel Association."

This year, the situation remained dim. "From January to October, net profit for steel companies was averaging 84 fen [HK$1.07] per tonne while the price of each tonne of steel was more than 3,000 yuan."

Wang said although the metal industry faced low profit margins, there were no huge risks it would collapse as it remained a pillar for the country's urbanisation.

The Fitch report said the mainland was still a long way from reaching an urbanised state - when urbanisation reaches 70 per cent. It was 52 per cent last year.