Market weakness crimps steel profits

According to the financial reports they released Tuesday, Bayi Iron and Steel Group as well as Hongxing Iron and Steel Co saw their profits slump 67.96 percent and 68.1 percent respectively in 2012 relative to the previous year, marking the latest signs that depressive conditions in the domestic steel market have yet to improve.

As of Tuesday, 16 of the mainland's 44 listed steel mills had disclosed financial results for 2012 which together revealed a record loss totaling 4.27 billion yuan ($687.04 million), with six firms under deficits equaling 17.69 billion yuan, figures from financial data provider iFinD show.

These results stand in contrast to the 17 billion yuan in combined profits that 34 mainland-listed steelmakers pulled in during 2011, a year when just three mills - Angang Steel Company Limited, Chongqing Iron and Steel Co, and Shaoguan Iron and Steel Co - had dipped into the red, the China Securities Journal reported Tuesday.

But the current downturn in the domestic steel market has been weighing on more than just listed mills, Ni Yin, an analyst from steel industry portal mysteel.com, told the Global Times.

China's 80 largest steelmakers realized combined profits of just 1.58 billion yuan last year, down 98.2 percent from profits in 2011, according to figures released on February 8 from the Ministry of Industry and Information Technology.

Waning demand and excessive supplies have been seen as the major culprits behind the industry's malaise, Zhang Jiabin, an analyst with steel industry portal umetal.com, said to the Global Times.

Ni echoed these views, explaining that heavy manufacturers have cut steel orders amid concerns about the country's fatigued economic recovery, while policies targeting home sales have thinned deliveries for construction-grade steel among developers. "With two of the biggest downstream steel buyers not ordering as much, this has inevitably shrunk sales for mills," said Ni.

Soft demand has also raised inventories and concerns about overcapacity over the past year, Zhang added.

Chinese mills held 14.51 million tons of excess steel as of the end of last month, another record high, statistics from the China Iron and Steel Association show.