ArrowArtboardCreated with Sketch.Title ChevronCrossEye IconFacebook IconIcon FacebookGoogle Plus IconLayer 1InstagramCreated with Sketch.Linkedin IconIcon LinkedinShapeCreated with Sketch.Icon Mail ContactPath LayerIcon MailMenu BurgerIcon Opinion QuotePositive ArrowIcon PrintRSS IconIcon SearchSite TitleTitle ChevronTwitter IconIcon TwitterYoutube Icon
Business Trends

Chinese steel outlook cools as metal gives up gains

US tariffs and falling prices threaten to cut earnings rebound short for Baoshan and peers

Only a small part of China's huge steel output goes to the U.S., industry leaders say, but aboveboard exports may not tell the whole story.   © AP

SHANGHAI -- With benchmark steel prices down by a fifth from last year's high, Chinese steelmakers coming off an earnings rebound already appear to be losing steam, belying industry leaders' bullishness in the face of U.S. tariffs.

Combined net profits at seven major listed Chinese steelmakers jumped about 160% last year, helped by cuts to excess capacity. But that tailwind is weakening, even as trade headwinds pick up.

Reflecting the uncertain outlook, shares in five of the the big mills -- including Baoshan Iron & Steel, China's largest listed producer -- have fallen by 12% to 17% since the end of February. That compares with a dip of just 1% for the Shanghai Composite Index. Trading in the other two producers' shares has been halted.

Baoshan's net profit soared 110% to 19.1 billion yuan ($3.04 billion) for the year ended in December thanks to higher steel prices during the period and cost savings from the merger with Wuhan Iron and Steel group. Even bigger gains were had by Beijing Shougang, Angang Steel and Maanshan Iron and Steel.

But Baoshan's 2018 sales are forecast to decline from the year-earlier tally of 289 billion yuan and may fall below 280 billion yuan. Chief Financial Officer Wu Kunzong told investors Tuesday that the group aims to raise annual capacity to 100 million tons. That goal, which would mark an increase from estimated current level of 70 million tons, was interpreted by industry watchers as showing interest in new acquisitions.

A gutted steel-processing plant in Changzhou shows the effects of China's capacity cuts.

Industry leaders like Li Xinchuang, vice chairman of the China Iron and Steel Association, have downplayed the impact of 20% American tariffs announced last month, saying that a relatively small 1.18 million tons of China's steel exports went to the U.S. last year. But Chinese steelmakers also are accused of rerouting their products through countries like Vietnam, so the trade measures may have more of a bite than executives are letting on.

U.S. import tariffs are affecting futures as well. Hot-rolled coil is trading between 3,400 yuan and 3,500 yuan per ton, below last year's average of 3,600 yuan. Prices reached 4,400 yuan per ton as recently as September, up 160% from two years earlier, as China cut excess production nationwide. Commodity market research firm JLC Network Technology says a long correction would hurt steelmakers' earnings eventually.

China also seems to be cutting steel capacity at a slower rate. In March, Premier Li Keqiang said the country will lower capacity in 2018 by just 30 million tons, compared with the reduction of roughly 120 million tons over the past two years.

Get unique insights on Asia, the most dynamic market in the world.

Offer ends September 30th

You have {{numberReadArticles}} FREE ARTICLE{{numberReadArticles-plural}} left this month

Subscribe to get unlimited access to all articles.

Get unlimited access
NAR site on phone, device, tablet

{{sentenceStarter}} {{numberReadArticles}} free article{{numberReadArticles-plural}} this month

Stay ahead with our exclusives on Asia; the most dynamic market in the world.

Benefit from in-depth journalism from trusted experts within Asia itself.

Try 3 months for $9

Offer ends September 30th

Your trial period has expired

You need a subscription to...

See all offers and subscribe

Your full access to the Nikkei Asian Review has expired

You need a subscription to:

See all offers
NAR on print phone, device, and tablet media