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Chinese steelmakers' profit gains rely on cost cuts

Baosteel used cost cuts to boost profit amid declining sales. The Chinese steelmaker's factory in Zhanjiang is seen here.

SHANGHAI -- Five major Chinese steelmakers saw sales decline on sluggish demand during the January-June half, but their profits mostly improved thanks to cost-cutting measures.

Sales for Baoshan Iron & Steel dropped 3% to about 78 billion yuan ($11.6 billion) in the half as falling prices outweighed growing sales volume. Yet cost cuts helped lift operating profit 15% on the year to 5.1 billion yuan. Hebei Iron and Steel, Ansteel Group and Magang (Group) Holding are among those that improved profit despite falling sales.

China's steel industry is struggling as the economy continues to slow, eroding demand for construction and infrastructure development. To tackle excess supply, the Chinese government aims to reduce the industry's production capacity by 10%, or 100 million to 150 million tons, by 2020.

The state-run Xinhua News Agency said Baotou Iron and Steel began demolishing a furnace with an annual capacity of 1.33 million tons, a record cutback in recent years.

The government aims to reduce steel-making capacity by 45 million tons this year but has reached only 47% of its goal through July.

Baosteel Group, Baoshan's parent, and Wuhan Iron and Steel said in late June that they have entered into talks for a merger. Both are state-owned companies, illustrating the government's push to restructure the industry. Smaller companies may follow suit, possibly accelerating similar mergers.

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