Mainland steelmakers are expected to report strong first-half earnings this year as rising product prices could entirely offset the increase in costs, though there will be uncertainties in the second half, industry major Maanshan Iron & Steel said.
'There are many uncertainties in the second half, including the demand and supply balance, how much raw material costs will increase as contract iron ore prices with Australian miners have not yet been fixed,' Su Jiangang, general manager of the Anhui-based steelmaker, said yesterday.
Mainland steel firms have agreed to pay Brazilian mining giant Vale 65 to 71 per cent more for iron ore from April 1. But Australian suppliers BHP Billiton and Rio Tinto are demanding more for their ore on the basis that it costs customers less to ship the mineral from Australia than from Brazil.
Maanshan Steel imports about 80 per cent of its ore, with half of that coming from Australia, Mr Su said. The remainder comes from Brazil, India and South Africa.
Mr Su said steel prices in the first quarter increased between 20 per cent and 25 per cent from the average price last year, enough to cover the increase in costs, and were still soaring in the second quarter.
Rising raw material and fuel costs eroded Maanshan Steel's gross margin to 11.33 per cent last year, down 1.46 percentage points from a year earlier, after iron ore costs rose 17.5 per cent, coal gained 9.5 per cent and coking coal surged 35 per cent.
