Manufacturing News

Chinese steelmakers slip, post Q1 losses

Waning demand and rising production costs have forced China's steelmaking industry to face a quarterly profit loss for the first time in a decade, the China Iron and Steel Association (CISA) said Wednesday.

Chinese steelmakers saw a loss of 1.03 billion yuan ($164.1 million) in the first three months of this year, marking the first profit loss seen since 2000, said Zhang Changfu, deputy head of the CISA.

Squeezed by increased costs and declining prices, nearly one-third of Chinese steelmakers reported losses in the first quarter, according to Zhang.

For major steel mills, profits and taxes totaled 15.18 billion yuan in the first quarter, down 64.83 percent year-on-year, while sales volume fell 0.95 percent to 863.89 billion yuan in the same period, said Zhang.

Production costs for Chinese steelmakers jumped 15 percent last year due to increased resource taxation and rising prices for fuel and raw materials, according to Zhang.

Major steelmakers' industrial output totaled 785.07 billion yuan in the three-month period, up 0.24 percent from a year ago, he said.

China's steel production has continued to rise, but at a slower pace. In the first quarter, Chinese steelmakers produced a total of 165.92 million tons of cast iron, 174.22 million tons of crude steel and 222.46 million tons of steel, up 3.2 percent, 2.5 percent and 6.5 percent year-on-year, respectively.

Zhang said major steel mills' monthly profits have been picking up, with major mills earning 2.08 billion yuan in March. The industry is struggling to return to a profitable level in the first half, he said.

However, Zhang warned that the steel market is facing escalating uncertainty, as market demand has continued to weaken. In the first quarter, the apparent consumption of crude steel declined by 270,000 tons, or 0.16 percent year-on-year in real terms.

Meanwhile, a decline in fixed asset investment and industrial growth has worsened the situation, according to Zhang.

China's urban fixed asset investment rose 20.9 percent year-on-year in the first quarter of 2012, down 2.9 percentage points from the whole-year total seen in 2011. Investment in infrastructure construction dropped 2.1 percent from a year earlier.

More alarmingly, the growth of steel-consuming industries slowed in the first quarter. General-purpose equipment manufacturing and transportation equipment manufacturing have seen growth slip by 13 and 8.2 percentage points from the same period last year, respectively.

"The industry should realize that there is not going to be a rapid rise in steel demand to support high production," said Zhang, calling for more work to be done on production control.

China's steel inventory stood at 17.89 million tons by the end of March this year, down 5.55 percent from a month ago.

"The blind pursuit of higher production instead of adjusting industrial structures and transforming development models will bring disaster to the steel industry," Zhang said, urging steel producers to upgrade their products and improve management in harsh times.

The CISA is also planning to launch an iron ore spot trading platform in May this year to curb speculation on iron ore prices, which has attracted the interest of nearly 100 enterprises from home and abroad, said Zhang.

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