Steel industry sees a brighter Q3

The steel industry's better performance in the third quarter was associated with stronger construction, experts said. [Photo / Provided to China Daily]

Most domestic steelmakers are seeing an improvement in their third-quarter performance.

Fifteen of the 20 listed steel companies that issued third quarter reports made profits, as opposed to last year, when up to 90 percent of the steel mills posted a loss.

Baoshan Iron and Steel Co Ltd, or Baosteel, the nation's largest listed steelmaker, said its net profit for the first three quarters tumbled by 56.99 percent year-on-year to 4.64 billion yuan ($761.6 million). but excluding the proceeds from selling stainless steel and special steel assets during the same period last year, the Shanghai-listed steelmaker said its profit was actually 2.28 billion yuan more than a year earlier.

"There was no obvious change in the Q3 steel demand/supply relationship, while raw material prices and selling prices rebounded moderately," Baosteel said in its Tuesday evening announcement.

Large and medium-sized domestic steel companies started to reverse the continuous loss-making situation, but the whole industry was running with petty profits, said analysts.

The Shanghai-based steel bellwether expects uncertainties to linger in the fourth quarter, and the company plans to streamline production, boost cost-efficiency and strengthen marketing to ensure a stable performance, according to an annoucement made by Baosteel on Tuesday evening.

According to a report from China Merchants Securities Co Ltd, Baosteel is undergoing a major transformation, going from being a pure steel producer to becoming an all-round steel service provider.

Like Baosteel, Wuhan Iron and Steel Co Ltd also posted a profit. It made 651 million yuan in the January-September period, up 98.44 percent over what it made in all of 2012.

Another steelmaker, Jiangsu Shagang Co Ltd, turned a profit of 14.9 million yuan, rocketing 251.6 percent year-on-year.

Even ST-capped Angang Steel Co Ltd made a 765 million yuan profit in the first three quarters, hiking 124 percent year-on-year.

Analysts anticipated the third-quarter profits. In July, the leading domestic steel mills generated 2.3 billion yuan in combined profit, their earnings jumping to 3.1 billion in August.

The improvement was associated with boosts from infrastructure construction, and the automotive and real estate markets, said Yang Hua, analyst with mysteel.com, a steel market information provider.

Several suspended high-speed rail projects restarted this year, which drove demand for related steel products. Meanwhile, automotive output and demand both are expected to climb between 10 and 15 percent this year, which will ensure solid demand for auto steel products, Yang said.

The real estate market remains a buffer against sliding exports and ebbing trade volumes. Thirty real estate developers announced sales results in September. They reportedly generated an aggregate 123.8 billion yuan in sales revenue, and analysts forecast that most of them will reach their annual sales targets ahead of schedule and likely set new records by the end of the year.

Analysts said the fourth quarter will be key to steel makers' profitability this year.

Domestic steel output is expected to decline modestly in the fourth quarter on softening demand, which will keep steel prices at low levels, the China Iron and Steel Association said in an analysis on its website.

"It's expected that steel production will decrease in the fourth quarter, but with a small margin. Due to low concentration in the industry structure and high homogenization among steel products, domestic steel prices can hardly surge as enterprises are scrambling for orders in a price war," said the CISA report.

"Market demand is expected to moderate in coming months due to the lower pace of steel production," the report said.

After growing for two consecutive months, China's steel price index edged down 1.54 points to 100.57 at the end of September, with the indicator slipping below the neutral 100 mark in October.

To stabilize prices, steel mills are being urged to pay more attention to restricting output, especially as crude steel output rose for a second month, the price of iron ore has been continuously on the rise, and difficulties have grown in exporting steel products.

Qiu Yuecheng, senior analyst at 96369.net, an e-commerce research platform, said average steel products prices surged 300 yuan per ton between July and August, and dipped 100 yuan in September.

"Although steel firms' profit declined along with the descending steel price in September, they will still stay profitable on average in the three months from July to September, outperforming the previous two quarters," Qiu said.