Hebei Iron & Steel sees big share price drop

Biggest producer experiences plunge though H1 profit quadrupled

Hebei Iron & Steel Co, a subsidiary of Hebei Iron & Steel Group, China's largest crude steel producer by output, saw its shares plunge on Wednesday despite a profit surge, signifying investors' pessimistic sentiment about the overall sluggish market.

The steelmaker's share price slid 3.26 percent compared with 0.11 percent and 0.35 percent gains on the Shanghai and Shenzhen benchmark indices respectively at market close on Wednesday.

The stock price slump came even after the company announced that its net profits attributable to shareholders had quadrupled to 332.9 million yuan ($54 million) for the first half of this year, as it cut provisions for depreciation on its fixed assets such as buildings, machinery and vehicles.

The steelmaker also said it achieved sales revenue of 50.7 billion yuan in the January-June period, down 7.54 percent from a year earlier.

The stock market performance of China's largest crude steelmaker mirrors concerns over falling steel prices in the weak market, even though profits in the steel sector improved a little as prices for raw materials for steelmaking had fallen even more, Guo Hao, an analyst at Qilu Securities, told the Global Times on Wednesday.

The industry's profits totaled 74.7 billion yuan for the first half of this year, slightly up 1.1 percent from the same period of 2013, official data showed on Monday.

Iron ore is now priced at about $89 per ton as of Tuesday, much cheaper compared with earlier in the year and the lowest since September 2012, according to Beijing Lange Steel Information Research Center.

Coal prices have also been low for a couple of years as downstream demand remains slack.

Steel prices have hit a bottom, but it remains unknown when it will pick up, Zhang Lin, a steel analyst at Beijing Lange Steel Information Research Center, told the Global Times on Wednesday.

The market price for cold-roll steel sheets, a major steel product and material for automaking and home appliances, is about 3,800 yuan per ton, even lower than August 2008 when the global financial crisis hit hard.

Steel demand is sluggish amid a slowdown in the economy and China's scaling back on debt-driven infrastructure building, which consumes about half of the steel output.

The country's tightening of environmental protection measures against polluting industries also weighed on steel producer earnings as they need to invest heavily in cleaning facilities.

"It is still hard to say that the steelmakers' performance will improve in the second half of this year, as output is on the rise while demand remains down," said Zhang of Beijing Lange.

China produced 412 million tons of crude steel for the January-June period, up 3 percent year-on-year, while total consumption was 376 million tons, according to the official data.

The Chinese government has been trying to reduce overcapacity in the steel sector by shutting down small heavy-polluting steelmakers, and encouraging mergers and consolidations in different regions.

But such progress has been slow as local governments try to protect local steelmakers from being merged due to fears of losing tax revenue and job creators.

The market is still oversupplied, but some steel producers can enjoy good profit margins in some niche markets such as steel products for high-end autos as well as those for making cutting tools, Zhang Yongjie, assistant to the head of the R&D center under Baosteel Group Corporation, told the Global Times on Wednesday.

Baosteel, China's fourth-largest steel producer by output and also the most profitable steelmaker, reported a net profit drop of 14.82 percent in the first six months of this year from a year earlier, compared with a 42.33 percent year-on-year fall in 2013.