2012-01-19

Chinese steel market still in decline

In a post from early December, Chinese steel industry profit margins collapse, I covered the collapsing margins at steelmakers. Now earnings are coming through.
China steel maker Baoshan's profits fall
China's Baoshan Iron and Steel Co said its annual net profit for 2011 fell by around 43 percent, as the nation's industry is hit by a slowdown in the domestic and global economy. Unaudited net profits fell to 7.3 billion yuan ($1.2 billion) in 2011 from 12.89 billion yuan in 2010, Baoshan -- the listed unit of China's second largest steel maker Baosteel Group -- said in a statement issued at the weekend.
The firm gave no reason for the fall in profit but it has previously said weaker demand and surging raw material costs eroded earnings in the first half of last year.
For resource investors, consider this delta: BHP Sees Another Record in Iron-Ore Output
BHP Billiton Ltd. said Wednesday it was set for another record year of iron-ore production after bumper output in the most recent quarter as it continues to expand operations in Western Australia's arid Pilbara region.
BHP's optimism over demand for its primary earnings driver helps damp predictions of a slowdown in industrial development in China, the world's biggest consumer of iron ore and other minerals. Anglo-Australian rival Rio Tinto PLC a day earlier posted record iron-ore output in the recent quarter as it too invests billions of dollars in mines and ports.
Finally, in early December I posted this chart of steel prices in China:
Here's an updated chart. Prices haven't been collapsing, but they've been ticking down at a regular price value, meaning the percentage losses are picking up.
Baosteel (600019.SS) stock has already priced in the decline and the stock has even bounced a little in 2012.

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