Weak end demand and unfavorable industry conditions would continue to weigh on China Steel Corp’s (CSC, 中鋼) profitability outlook this quarter, Credit Suisse and Deutsche Bank analysts said yesterday, after the Taiwanese mill reported its first quarterly loss for the fourth quarter in more than two years.
“While foreseeing unit profit recovery in the first quarter of 2012 on cheaper feedstock, we believe the recovery pace is slow on weak end demand,” Credit Suisse analysts led by Sidney Yeh (葉昌明) said in a report.
“The demand slowdown and unfavorable industry demand/supply balance should continue to cap steel profitability upside,” Deutsche analysts James Kan and Yvonne Tsai said in a separate report.
CSC, Taiwan’s largest integrated steelmaker, on Tuesday reported a pretax loss of NT$2.42 billion (US$80.64 million) in the fourth quarter on weak demand and falling prices, according to a company statement.
The fourth-quarter pretax loss represents the first quarterly loss since the first quarter of 2009, when the Greater Kaohsiung-based company posted a pretax loss of NT$9.57 billion.
The result also compares with a pretax profit of NT$5.4 billion in the third quarter and NT$6.14 billion in pretax profit the firm reported a year earlier, company data showed.
For the whole of last year, CSC said its pretax profit totaled NT$20.29 billion, although that was still 54 percent lower than the NT$44.1 billion it made in 2010.
For the full year, revenue totaled NT$240.38 billion, up 0.5 percent from NT$239.19 billion in 2010. Based on the 15.05 billion issued shares, last year’s pretax profit translated into earnings per share of NT$1.35.
CSC said the fourth-quarter pretax loss reflected the impact of weak global demand and the lackluster world economy. The firm incurred a price rebate of NT$2 billion for domestic downstream customers after it cut the price of steel products by an average of 7.08 percent for this month’s and next month’s contracts.
An inventory-related writedown of NT$2.9 billion last month and a NT$400 million loss in equity investment also contributed to its poor result for the quarter, CSC said in the statement.
Looking ahead, CSC said the steel market is expected to recover gradually this quarter given improvements in the global economy.
“Steel prices in Europe and the US and export prices from Asian mills have bottomed out recently, while some downstream industries have resumed taking new orders from overseas clients,” it said.
Deutsche Bank said it was not that optimistic.
“Steel prices could see a temporary restocking rally after the Chinese New Year. However, we believe the rally, if any, will not last long and steel prices should soften again because of restocking activities due to weak macro/industry fundamentals,” Kan and Tsai wrote in the report.
Credit Suisse also said CSC’s plant utilization might recover after the Lunar New Year holiday, but the recovery pace "looks slow currently."
"Amid macro downturn, our checks with steel companies suggest volume could be low in the first half of 2012," Yeh said.
China Steel shares closed down 0.17 percent at NT$28.95 on the Taiwan Stock Exchange yesterday, compared with the benchmark TAIEX's 0.17 percent rise.