BW Communities

Asian Steelmakers' Profits Seen Lower

BW Online Bureau Nov 08, 2014

<?xml version="1.0" encoding="UTF-8"?><root available-locales="en_US," default-locale="en_US"><static-content language-id="en_US"><![CDATA[Asia's top steel mills could report weaker profits for the quarter that ended in December as demand and prices ease and as eurozone debt worries and slowing growth in China and India cast a pall over the outlook for coming quarters. Steelmakers in China and India have seen declining orders as key consumer sectors such as construction and automobiles feel the pressure of tightening monetary policy. Steelmakers in Japan have been hurt by a strong yen and downward pressure on prices. Global crude steel production hit a record 1.527 billion tonnes in 2011, but the pace of growth fell sharply as the sovereign debt crisis in Europe and slowing economic growth in top consumer China dented demand. Output grew 6.8 per cent in 2011, down from 15 per cent in 2010, according to the World Steel Association. "China's overall macro-economy environment in 2012 will not be optimistic, and this continues to weigh down on its steel sector," said Liu Jianmin, an analyst with Huachuang Securities in Beijing. "Without strong bargaining power in both upstream raw materials purchases and downstream steel products sales, we remain cautious on China's steel market outlook," he added. Chinese steel mills have seen orders slow and some have scaled back production in recent months to stem losses. Daily crude steel output slipped to an 11-month low in November, before recovering 1.2 per cent in December. World No.2 Baoshan Iron & Steel said it expects 2011 net profit to fall 43.4 per cent to 7.3 billion yuan. Japanese steelmakers Nippon Steel Corp, the world's No.4 steelmaker, and JFE Steel Corp, the No.5, are also forecast to slash their full-year earnings outlooks once again as exports tumbled in the wake of the strong yen. The two Japanese companies cut their outlooks by about 20 per cent only three months ago on a sudden fall-off in demand in Asia's steel market following China's tightening on lending. Japan's exports of carbon steel fell 17 per cent in November to a 29-month low, as steelmakers curtailed volumes in the wake of the strong yen. Devastating floods in Thailand, an Asian hub for car production, hit Japanese automakers hard as parts-supply disruptions have forced them to cut output. The strong yen has opened the door for cheaper imports from Asian rivals. A plunge in the cost of major inputs iron ore and coal is also leading to vocal calls from Japanese carmakers to cut steel prices. Impact On Margins South Korea's POSCO, the world's third-biggest steelmaker, last week said it expected to post weaker operating profit for the quarter as a slowing global economy dented demand and weighed on prices. The outlook is also dim with demand forecast to remain fragile in China, while an inventory of more expensive raw materials will be used in the current quarter, analysts said. The company generates around a third of its sales overseas. POSCO estimated a 4.2 trillion Korean won operating profit in 2011, down 12 per cent from a year ago. The annual results suggest POSCO earned 692 billion won in fourth-quarter operating profit, according to Reuters calculation, below analysts' average forecast of 839.3 billion won. "We do not anticipate a quick and/or drastic expansion in steel making margins in the near term considering weak demand outlook under continuing over-capacity," Credit Suisse said last week in a report on POSCO. But POSCO, backed by billionaire investor Warren Buffett, is riding out the storm better than its peers, running its plants at full capacity while its other Asian and European peers cut production to cope with a slump in demand. POSCO said last week it will pay $1.6 billion to expand its stake in an Australian iron ore mining firm, its biggest investment in resources to date. The overseas investments could pressure its financial profile, analysts said. Margins at India's top steelmakers have been under pressure during the quarter because of slowing investments by end-user industries, higher interest costs and foreign exchange losses on import of raw materials. "Outlook for Indian steel prices remains negative due to weakening demand and global economic slowdown," brokerage Motilal Oswal Securities said in an earnings report, adding that a correction in raw material prices could push prices down further. State-run Steel Authority of India is likely to post a 25 per cent decline in quarterly profit, while world No.7 Tata Steel, could report a two-thirds fall in profit because of higher costs and lower prices in Europe, where it operates most of its global capacity. (Reuters)