China Baosteel's H1 net profit plunges on high raw material prices

reuters.com Company,  Cost & Profit 2019-08-23 16:36:44

China's Baoshan Iron & Steel Co Ltd reported net profit fell 38.2% in the first half of 2019 from a year earlier on surging raw material prices and sluggish auto sales.


Known as Baosteel, China's biggest listed steel firm reported a net profit of 6.19 billion yuan ($873 million) in the first six months of 2019, compared to 10.01 billion yuan a year earlier, according to a statement filed to the Shanghai Stock Exchange.


During the April-June period, profits earned by Baosteel were 3.5 billion yuan, according to Reuters calculation. That was up from 2.73 billion yuan in the first quarter of this year, but still well below last year's 4.99 billion yuan.


"Overall auto demand is weak this year and demand plunged. The surging raw material prices also narrowed purchase and sales price differentials," said Baosteel, adding that output cuts and other measures mandated by Beijing to reduce pollution and protect the environment are still the company's biggest risk.


Baosteel's results followed iron ore supply concerns as a deadly tailings dam collapse in Brazil in January and a tropical cyclone in Western Australia in March disrupted operations at iron ore mines. Iron ore prices were driven up by as much as 62.8% in the first half of this year.


Meanwhile, demand for autos and construction steel was dampened by cooling economic growth at home and the trade war with the United States.


China's vehicle sales have contracted for 13 consecutive months, the China Association of Automobile Manufacturers said earlier this month.


Most of China's listed steel firms reported lower profit or net losses in the first half. Jiangshu Shagang Co Ltd, the listed arm of China's biggest privately owned steel mill Shagang Group, said last week its first-half net income fell 56% from a year earlier.


Beijing has rolled out stimulus measure, including raising infrastructure spending, to prop up the economy and its fixed-asset investment during January to July rose 5.7% from a year earlier, supporting steel demand.


In the first six months of 2019, Baosteel churned out 22.8 million tonnes of iron ore and 24.3 million tonnes of steel. It aimed to produce 45.46 million tonnes of iron and 48.18 million tonnes of steel this year as announced in April.


"Trade friction will still bring relatively big uncertainties to China's steel products exports in the second half," according to the company.


"We expect our production and sales basically to remain stable in the second half of this year, and will further explore the potentiality to cut costs," it said.


(Writing by Alex Guo  Editing by Tammy Yang)
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