Baoshan Iron and Steel Co (Baoshan Steel), the listed-arm of China Baowu Group, suffered a 44% on-year fall in net profits over the first nine months of 2019 to some Yuan 8.87 billion ($1.3 billion) despite firm production. The company cited surging raw material prices, as well as the softening demand and steel prices, Mysteel Global noted on October 29.
Over the first three quarters of this year, Baoshan Steel produced 11.8 million tonnes of pig iron and 12.4 million tonnes of crude steel, being up a mere 0.7% and 0.2% on year respectively, according to the company’s Q3 report released on October 26.
The lower steel prices and shrinkage in demand this year had dragged steelmakers’ profits back to a much normal level from last year’s phenomenal results.
Over the first nine months of 2018 for example, Baoshan Steel posted a sizeable 35% jump in its net profits compared with January-September 2017 at Yuan 15.7 billion, which the steelmaker attributed to rising steel production, better steel prices, and stable market fundamentals, as Mysteel Global reported at the time.
This year, Baoshan Steel – as the major auto steel producer in China – has felt the chill of the automobile industry’s struggles, Mysteel Global noted. Domestic auto sales over the first nine months of 2019 decreased 10.3% on year to 18.4 million units, and auto production declined 11.4% on year to 18.1 million units, according to statistics from the China Association of Automobile Manufacturers.
“Auto sheet accounted for a rather high proportion among our steel products, thus the declines in auto sales and production also influenced the performance,” an official from Baoshan Steel said. In 2018, Baoshan Steel sold 47.1 million tonnes of steel products, among which some 12.4 million tonnes were auto sheet, Mysteel Global noted.
He believed that the peak of auto sales and production has not come yet, and an uptrend could still be seen in the future, though the continuing high-speed growth would not be sustained. Auto sheet production from Baoshan Steel’s producing lines in operation and under construction is enough to satisfy its clients’ demand, the official explained. In the future, the steelmaker will adjust the structure of its automobile steel products accordingly.
“We are now drafting the outline of the product structure at our Zhanjiang and Yancheng works in view of the movements in the domestic auto sheet market,” he said without disclosing more details.
During this year’s first nine months, any direct impact of the Sino-US trade friction on Baoshan Steel’s performance was limited as few of the company’s steel exports were destined for the US. However, the trade dispute’s negative influence on some downstream products such as home appliances and automobiles indirectly affected the company’s business.
Mysteel’s national average price for Q235 4.75mm hot-rolled coil declined 8.2% on year to Yuan 3,874/t including the 13% VAT on average during January-September while Mysteel’s portside iron ore index surged 45.7% on year to average Yuan 718/wmt FOT Qingdao including 13% VAT over the same period.
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