bodyType

customContents

entityId

entityUuid

articlePageQuery

filter

article

articleBaseAdvertisingInfoArticle

articleListArticle

articleSeoArticle

helpersCheckIsPostiesArticle

hooksArticleAcknowledgementGateOverlayArticle

hooksTrackPageViewArticle

hooksContentInterestArticle

articleLinkingDataContent

articleSchemaContent

liveArticle

advertZone

sentiment

contentLock

topics

types

sections

moreOnThisArticles

urlAlias

commentCount

sponsorType

authorLocations

authors

paywallTypes

corrections

displaySlideShow

multimediaEmbed

printHeadline

seriesContainer

socialHeadline

headline

flag

firstTopic

glossary

flattenTypeIds

publishedDate

additionalInfoBoxes

images

image

relatedLinks

relatedNewsletters

__typename

createdDate

sponsor

factSheets

series

disableOffPlatformContent

published

updatedDate

summary

subHeadline

body

keywords

copyrighted

customTimezone

liveContents

Carol Chan

The market is expected to shrug off disappointing first-half results from mainland steelmakers next month, because recent price increases by  key mills have raised hopes that demand will stay buoyant and the recent economic recovery is sustainable.
Benchmark Chinese steel prices have gained 21 per cent since April 1, and the industry turned a profit in May after seven months of losses.
Hebei Iron & Steel Group, the mainland's second-biggest steelmaker, maintained this year's profit target at 2.5 billion yuan (HK$2.84 billion), despite posting a first-half profit of just 472 million yuan.
'The steel market has stabilised and is recovering. We should grasp the opportunity to boost profit, although it's still difficult,' said Wang Yifang, the company's chairman.
Hebei Steel's first-half profit was not as bad as some interim results its rivals may post. By last Tuesday, 14 mainland-listed steelmakers had warned they might report an interim loss. Angang Steel has said it might post a loss of up to 2.9 billion yuan.
OSK Securities analyst Helen Lau said the worst was over and predicted the steel industry would return to the black in the second half.
'China's strong second-quarter economic growth data suggests that the economy is expanding, and steel demand from downstream customers is holding up quite well,' she said.
The economy grew 7.9 per cent year on year in the second quarter, putting the country on track to lead the world out of the worst global downturn since the Depression.
'There are also positive signs that steel orders in other countries are picking up, with some big steel mills recently reopening idled blast furnaces,' Ms Lau said. 
'If restocking has also started in overseas markets, it will support further rises in steel prices.'
Baosteel Group, the biggest mainland steelmaker, recently raised hot- and cold-rolled steel product prices by between 9 and 13 per cent for  delivery next month, the biggest monthly increase since May last year. 
Other key steel mills, including Shougang, Wuhan Iron & Steel and Shagang, have also raised product prices for August delivery.
Mills are continuing to set prices above the spot rate, indicating that they are optimistic about demand and prices. It may also suggest that they are preparing to pass on rising raw materials costs to customers.
Cash prices for India's iron ore climbed above US$93 a tonne last week, an eight-month high, and are now above the benchmark price agreed by Japanese and South Korean mills with Rio Tinto.
Steel output at the world's biggest steel producing country was also rising. China's crude steel output hit an all-time monthly peak of 49.42 million tonnes or a daily output of 1.65 million tonnes last month, equivalent to annual output of more than 600 million tonnes, according to the National Statistics Bureau. Output last month rose 40 per cent from a trough last November.
Ms Lau said strong fixed-asset investment, which rose 33.6 per cent year on year last month, and a rebound in industrial production growth were key factors underpinning a recovery in steel demand and an acceleration in steel production. As demand picks up, Ms Lau expects the utilisation rate in steelmaking to pick up from 80 per cent this year to nearly 90 per cent  next year and in 2011, and then recover to the  highs last seen in 2007.
Ms Lau said crude steel production would continue to accelerate from  last year. 
She expected it to rise 5 per cent to 521 million tonnes this year, 9 per cent to 568 million tonnes next year and to reach 624 million tonnes in 2011.
However, not everyone is as optimistic as Ms Lau. 
The China Iron and Steel Association expects steel prices to hold steady amid fluctuations in the third quarter but said the steel recovery was not yet on a solid footing, and the mainland steel industry should increase restructuring efforts.
'Steel mills should not be blindly optimistic about the future. Though the domestic economy is brightening, challenges remain,' warned the association, which has 72 members representing  75 per cent of  the country's steel capacity. 
The association said overseas demand would stay low in the short term, battering China's steel exports. An oversupply in flat products would slow the pace of the steel industry's recovery, although prices for construction steels, a key beneficiary of Beijing's massive fiscal spending plan, still had room to rise.
Net steel imports stood at 1.35 million tonnes for the first six months of the year, versus net steel exports of 19.88 million tonnes in the same period last year.
Investment bank Citigroup has predicted an oversupply of about 20 million tonnes this year, which looks 'temporarily manageable'. But with limited demand for exports, this would continue to pressure domestic steel prices, Citi analyst Thomas Wrigglesworth said in a report.
Mr Wrigglesworth also said there was a mismatch between expected demand - restocking from traders in anticipation of the government's four trillion yuan stimulus package - and actual demand, given that infrastructure projects are only just about to begin in earnest and apparent consumption in construction steels has been at record levels since December last year.
Wang Zhe, an analyst at China Securities, said the steel market's current performance was far better than he had expected and in the short term there were no reasons for steel prices to fall.
But Mr Wang warned that risks were increasing. 
'The growing gap in steel prices between domestic and overseas markets indicates that China's steel exports will not improve much,' he said. 'While restocking by downstream customers is coming to a close, market inventories remain high, and historically high output may  also cause a downturn in the market.'



Steel firms seen weathering poor results