China's ferrous metal industry is set to post a strong performance in the first half of the year on the back of government measures to cut overcapacity and optimize the industry's structure, experts said.
With the reduction of excess capacity, there is a tight supply of iron and steel, leading to high prices, especially wires and rebars.
Around 20 listed firms in the iron and steel sector have forecast their earnings for the January-June period.
Hebei Iron and Steel Co., Ltd said its first-half profit will likely be between 1.15 billion yuan ($148 million) and 1.27 billion yuan, up 181-210% year on year.
If its forecast holds, that would be the third highest growth rate in the 20 years since the company listed on the A-share market.
Similarly, Fujian Sansteel Minguang Co Ltd said it expects its first-half profit to rise 200% year-on-year to 1.08 billion yuan.
"The main reason (for the good performance) is the government's efforts to eliminate outdated capacity, especially inferior steel," said Li Xinchuang, president of the China Metallurgical Industry Planning and Research Institute.
By June 30, China had shut all companies that produce inferior steel. More than 500 such companies whose combined capacity was 119 million tonnes were shut, according to a statement from the China Iron and Steel Association.
The rebar price is 3, 928 yuan/t, up by 676 yuan from the beginning of the year.
Although data show that the total steel output has increased in the January-June period, the demand has shifted from informal products such as inferior steel to qualified steel made by major steel companies. That means, the supply is not adequate to meet the current demand.
At the same time, iron ore prices are comparatively low thanks to rising output, oversupply, and high port inventories. Low material prices help keep steel production costs at relatively low levels.
China imported 539 million tonnes of iron ore in the first half, up 9.3% year-on-year, while the country's iron ore production was 508 million tonnes in the first five months, up 10.4%. Low costs and high prices are expected to boost companies' profits.
Li said rising infrastructure investment, automobile production and machinery manufacturing in the first half of the year will also likely expand steel consumption.
Total profit of major iron and steel companies was 37.9 billion yuan in the first five months of this year, exceeding full-year combined profit of 33.15 billion yuan in 2016, according to the China Iron and Steel Industry Association.
(Writing by Jessie Jia Editing by Harry Huo)
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