Business

Yunnan Tin Co., the world’s biggest producer of the metal, said third-quarter profit fell 32 percent on higher raw material costs.

Net income fell to 135.6 million yuan (US$19.8 million), or 0.21 yuan a share, the Yunnan Province-based company said yesterday. Sales rose to 2.3 billion yuan from 2.2 billion yuan.

(Shanghai Daily October 30, 2008)

Baoshan Iron & Steel Co. yesterday said its third-quarter net profit nearly halved from the second quarter after prices fell, and China’s top listed mill expected losses in its main carbon steel sector in the current quarter due to slumping prices.

The mill earned 2.85 billion yuan (US$417 million) in the past quarter, up 19.2 percent in annualized terms. But this represented a 47.1-percent decline quarter-on-quarter.

“A nearly 50-percent drop reflects the situation of the steel industry in the third quarter,” Essence Securities analyst Zhao Zhicheng said. “Baosteel’s results were not a surprise.”

Baosteel said that in the third quarter “steel prices have fallen in the domestic market where supply and demand have seen changes.” The company blamed the global economic slowdown, weaker exports and demand from downstream industries as well as the release of new capacities.

Baosteel said its main carbon steel business saw earnings drop sharply quarter-on-quarter without giving exact figures, and said the sector may suffer a loss in the current quarter.

Its stainless steel business lost in the past quarter because of lower product and nickel prices, the firm said, adding the situation looked unlikely to change in the final quarter.

Analysts said China’s steel industry is now squeezed by both declining prices of products and increasing costs of production.

(Shanghai DaIly October 30, 2008)

China Iron and Steel Association has called a conference of the largest domestic steelmakers to work out a common stand in bargaining with major iron ore producers in the 2009 round of price negotiations starting next month, the English newspaper China Daily reported on Tuesday.

This round of negotiations is expected to be different from previous ones that were largely dominated by the ore suppliers. This time, the market situation has changed as fallout from the global credit crisis has greatly depressed demand, the China Daily said.

The enhanced bargaining power of Chinese steelmakers in this buyers’ market was clearly demonstrated by their boycott of Brazil’s mining company, Companhia Vale do Rio Doce, which unilaterally raised ore prices on Sept. 3.

Major Chinese steel makers and iron ore suppliers decided to suspend imports from Vale because of the company’s price hike on iron ore.

Shrinking steel demand, plus a sagging property market and dropping car sales, has pushed the prices of Chinese steel products down by an aggregate of 40 to 50 percent since early October.

“The only way out for steel producers at the moment is to slash production to fight the drop in steel product prices,” said Li Bing, director of the mining resources trading department at Ma Steel in Hebei Province. He added Ma Steel has cut its production by 30 percent this month.

Despite dwindling demand for steel products, many Chinese steelmakers, in compliance with previously agreed trading contracts with ore suppliers, are continuing to import iron ore from Australian suppliers at the contract price, which is much higher than the current spot prices.

Baosteel, the country’s top steel producer, last week announced a further drop in the prices of its major products from 1,700 to 1,000 yuan (US$146to US$249) per ton.

“Falling spot iron ore prices and the output reduction by Chinese steelmakers will combine to strengthen their bargaining power in the negotiations,” said Du Wei, a senior steel industry analyst with the Chinese Umetal.com website.

(Xinhua News Agency October 28, 2008)

Aluminum Corp. of China Ltd., the country’s largest producer, said yesterday its third-quarter earnings slumped 93 percent as metal prices dropped and slowing economic growth hurt demand.

Net income fell to 182.9 million yuan (US$27 million), or 0.014 yuan a share from 2.29 billion yuan, or 0.191 yuan, a year earlier, the company, known as Chalco, said in a statement to the Hong Kong stock exchange, citing domestic accounting standards. Sales dropped 7.9 percent to 19.1 billion yuan.

Chairman Xiao Yaqing is shutting plants and curbing expenditure to counter a 22-percent drop in metal price this year as China’s economy grows at the slowest pace in five years. Alcoa Inc, the largest United States aluminum maker, on October 7 posted a 52-percent decline in third-quarter profit.

“Demand looks bleak this quarter and next year due to an economic slowdown,” Chris Ding, a Beijing-based analyst at China International Capital Corp., said before the announcement. “With falling prices and squeezed margins, the aluminum industry will consolidate.”

Chalco’s shares have slumped 85 percent this year in Hong Kong trading, worse than the 55 percent drop in the benchmark Hang Seng Index. The stock fell 14 percent on Friday to close at HK$2.48 (32 US cents). Its yuan-denominated shares dropped 2.1 percent to 6.57 yuan in Shanghai, Bloomberg News said.

The Beijing-based company forecast on October 6 that its third-quarter profit would drop by more than 50 percent, and last Wednesday said it will cut annual aluminum production capacity by 18 percent. JPMorgan & Chase Co. and CICC’s Ding expect Chalco to post a loss in the fourth quarter.

Aluminum futures dropped by more than a fifth this year to 13,825 yuan a ton on Friday on the Shanghai Futures Exchange.

Chinese smelters have an average production cost of 18,000 yuan to 18,500 yuan a ton, according to JPMorgan.

(Shanghai Daily October 27, 2008)

Angang Steel Co., China’s second-largest steel maker, said third-quarter profit climbed 29 percent as it benefited from higher steel prices.

Net income rose to 2.27 billion yuan (US$332 million) from 1.76 billion yuan a year earlier, the Anshan, Liaoning Province-based company said yesterday in a statement to the Shenzhen Stock Exchange, citing domestic accounting standards. Sales rose to 22.8 billion yuan from 16.3 billion yuan.

China’s steel prices gained 23 percent this year to a record on June 5, helping mills cover record costs for iron ore and coking coal. Chinese mills may take losses in the fourth quarter as the global credit crunch and economic slowdown curbs demand from builders and car makers, sending steel prices lower.

Angang fell 4.6 percent to HK$3.56 (46 US cents) in Hong Kong yesterday. The stock has fallen 83 percent this year, compared with the 51-percent drop in the Hang Seng Index. The announcement came after the market closed.

Angang’s nine-month profit rose 26 percent to 8.25 billion yuan, the statement said. Sales rose to 63 billion yuan from 49 billion yuan.

China’s prices of hot-rolled coil, an industry benchmark, have fallen to 3,620 yuan a ton from a record 5,957 yuan on June 5, according to Beijing Antaike Information Development Co.. The slump has led to losses at almost all steel makers, JPMorgan Chase & Co.’s analyst Zhang Feng said in a note last week obtained by Bloomberg News.

Angang started its new mill in Bayuquan, Liaoning on September 6 to make as much as 5 million tons of products a year.

(Shanghai Daily October 24, 2008)

The Aluminum Corporation of China Ltd. (Chalco), the country’s largest aluminum producer, said on Wednesday it would cut production in line with falling demand and prices.

The total capacity reduction would be 720,000 tons a year or 18 percent of the company’s annual production, said a company statement.

It would reduce or stop electrolytic aluminium production in several regions, including east Shandong Province, Henan and northern Liaoning and Inner Mongolia. A statement on Chalco’s website said those areas had relatively higher business costs.

The Beijing-based company declined to tell Xinhua whether or not the production cut would lead to layoffs.

An official surnamed Su with the State-owned Assets Supervision and Administration Commission of the State Council, also declined to discuss the job situation.

Worldwide aluminum prices dropped more than 30 percent in the past three months. The current price is about 2,000 U.S. dollars per tonne on the London Metal Exchange (LME).

The rising stockpile at futures markets contributed to weakening the price, said market analysts.

Aluminum stockpiled on the LME 1.496 million tonnes and on Shanghai Futures Exchange (SFE) 204,700 tonnes on Wednesday, up 63 percent and 60 percent since the beginning of the year, respectively.

Stockpiles are inventory that can be used as emergency supply. Consumers can use stockpiles stored in hundreds of warehouses located around the world when the supply and demand is out of balance.

Chalco said it would likely further reduce production in the coming months.

“The company’s move to reduce production is expected to prevent aluminum prices from suddenly dropping in the near future, but it is not likely to stop a slump in the long term,” said Zhengbin, an analyst with Xinhua Futures Brokerage Co. Ltd..

The company’s net profit dropped 65.56 percent to 2.4 billion yuan (350.4 million U.S. dollars) in the first half, according to its half-year report.

Chalco was listed on the Shanghai Stock Exchange in 2007. Its shares lost 1.32 percent on Thursday to close at 6.71 yuan.

(Xinhua News Agency October 23, 2008)

Aluminum Corp. of China, the nation’s biggest producer, will slash annual production capacity by 18 percent and has said it may consider further cuts because of falling metal prices and weak demand.

The company will trim some production in provinces including Shandong, Henan and Liaoning and Inner Mongolia Autonomous Region, where costs were relatively higher, the Beijing-based company, known as Chalco, said in an e-mailed statement to Bloomberg News yesterday. The total capacity reduction will amount to 720,000 metric tons a year.

Chalco, Alcoa Inc and Rio Tinto Group are shutting smelters after the price of aluminum plunged by a third in three months.

“We expect more news on production cuts this quarter,” said Chris Ding, a Beijing-based analyst at China International Capital Corp. “The level of the production cut was not enough to reverse an oversupply in China next year.”

Chalco dropped 6.5 percent to HK$3.18 (US$0.41) in Hong Kong trading, taking this year’s loss to 80 percent.

Chalco and 19 domestic rivals agreed to cut output by 10 percent in July. The largest producers in China had promised to cut output because of a power shortage and weakening demand. Chalco said on October 6 that third-quarter profits may tumble by more than half on higher costs and falling demand.

Aluminum for three months delivery on the London Metal Exchange dropped 0.5 percent to US$2,065 a ton.

Chalco may start to lose money this quarter, JPMorgan & Chase Co. estimated on October 15. Chalco had aimed to boost aluminum capacity to 3.6 million tons this year before the announcement. Capacity may be 3.2 million tons by the year end, CICC’s Ding estimated.

China, the world’s largest producer and consumer of aluminum, may have an oversupply of 2 million tons next year, Ding said. So far, production capacity cuts by smelters were less than 1.5 million tons, he said. United Co. Rusal, the world’s largest aluminum smelter, said on October 16 that 75 percent of producers in China, Europe and the United States are unprofitable after the metal’s price plunged.

Chalco had closed 10 percent of its total alumina capacity and shuttered smelters in Shandong and Henan provinces, a company official said.

(Shanghai Daily October 23, 2008)

Jinan Iron and Steel Co., the publicly traded unit of China’s eighth biggest steel maker, will raise as much as 1.99 billion yuan (US$291 million) selling yuan-denominated shares to fund purchases of assets from its parent.

Jinan Steel would sell up to 380 million shares at 5.24 yuan apiece in Shanghai on Friday, the Shandong Province-based company said yesterday in a statement to the Shanghai stock exchange. The proceeds would help buy 6.74 billion yuan worth of assets from the parent, Jinan Iron and Steel Group, including a hot-rolling plant, a cold-rolled mill and a power plant, Bloomberg News reported.

China’s stock market has tumbled 66 percent this year, leaving Jinan Steel unable to raise all the funds for the purchases via share sales. China is encouraging state-owned companies to inject assets into publicly traded units to improve competition and facilitate mergers to remove excess production capacity. The company did not say how it would raise the remainder of the funding.

Jinan Steel fell 1.4 percent to 5.11 yuan by 10am yesterday in Shanghai compared with a 1.7 percent decline by the CSI 300 Index, which tracks yuan-denominated stocks traded in Shanghai and Shenzhen. The shares have tumbled 73 percent since the company’s shareholders approved the additional share offering last November.

Existing investors could buy two new shares for every 10 they hold, the statement said. The Jinan Iron and Steel Group would buy as much as 261 million shares to retain its 68.7 percent stake in the company, Jinan Steel said. Jinan Steel Group pledged not to sell the shares for at least 12 months.

Consolidating steel assets into the single unit would boost Jinan Steel’s output to 6.42 million tons from 4.96 million tons, Jinan Steel said last November.

(Shanghai Daily October 23, 2008)

China’s Baoshan Iron and Steel Co. has cut prices for December by as much as 20 percent in a bid to lift domestic demand amid a slowing economy.

The company lowered prices for cold-rolled steel by 900 yuan (US$132) a ton and for hot-rolled steel by up to 1,000 yuan a ton, said Mysteel Research Institute. Its price of cold-rolled steel for November is 5,396 yuan a ton, and for hot-rolled steel 4,942 yuan a ton, sources said.

As the listed arm of China’s largest steel mill, Baoshan cut output in September and reduced prices for October to stimulate domestic demand.

“Steel prices slumped sharply after the National Day holiday by an average of 15 percent,” said Luo Wei, an analyst at China International Capital Co..

“Although Baoshan cut its sales prices for November, there is still a premium between the sales price and market price. The latest reduction for December can make the price difference more reasonable.”

Luo predicted a dismal fourth-quarter profit for Baoshan and that steel prices for next year will tumble 17 percent on average due to the weak demand.

Other Chinese steel mills, such as Angang Steel Co., also face a profit squeeze as new plants open, raw material costs jump and demand slows.

Domestic steel prices have soared 23 percent this year to a record in early June as mills raised prices to counter higher raw material and energy costs, tapping the robust demand.

But they have started to fall sharply since the last quarter with prices more than 30 percent lower than the June peak.

Four mills, which account for 16 percent of China’s steel output, have agreed to cut it by 20 percent from this month.

(Shanghai Daily October 22, 2008)

China’s iron ore imports failed the expectations for a substantial decline in September, due largely to traders and steelmakers betting on possible mounting demand after the Beijing Olympics.

According to latest customs data, China bought from abroad 39.2 million tonnes of iron ores last month, up 1.8 million tonnes on the August figure. The arrivals were valued at US$5.79 billion, up 18.2 million dollars from the previous month.

The import volume went against expectations and failed to be in line with real demand at home over the past weeks, Xu Xiangchun, a steel industry analyst, said on Saturday.

Since the beginning of September, major Chinese steel manufacturers have announced to slash production upon falling steel prices on the domestic market.

Xu predicted that the less demand would be reflected in import figures for October and November.

Between January and September, China imported 346.11 million tonnes of iron ores, up 22 percent over the same period of last year. The arrivals were valued at US$48.9 billion, up 116 percent.

(Xinhua News Agency October 18, 2008)