Sat, Oct 20, 2012 - Page 13 News List

China Steel price cuts to damage profits

TOUGH TIMES:Analyst Tsai Yen-ling has adjusted downward her profit forecast for China Steel Corp this year, saying it is likely to report its lowest profits in a decade

By Kevin Chen  /  Staff reporter

With the announcement of its domestic steel prices for December, China Steel Corp (CSC, 中鋼) will see its profits fall to their lowest level in a decade as it continued lowering prices in the second half of the year.

China Steel, the nation’s only integrated steelmaker, yesterday said it would cut its December contract prices by an average of NT$673 (US$22.98) per tonne, or 3.31 percent, because of industry-wide oversupply and weak demand compared with a year earlier.

The latest price adjustment is China Steel’s third price cut in the second half of this year, after the company lowered prices for this month’s and next month’s contracts by an average of 5.11 percent, after cutting prices for July and August contracts by 5.01 percent.

Fubon Securities Investment Services Co (富邦投顧) analyst Lee Han-shin (李翰興) said China Steel is facing pricing pressure from its downstream customers as its list prices remained relatively high when compared with international levels.

Following its consecutive price cuts over the past six months, “China Steel is unlikely to see substantial improvement in its profits in the short term,” Lee said in a note yesterday.

The Siaogang District (小港), Greater Kaohsiung-based company saw its cumulative pretax income in the first nine months reach NT$3.99 billion, down 82.44 percent from a year earlier, with pretax earnings per share (EPS) coming in at NT$0.26 during the period, compared with an EPS of NT$1.51 the previous year, China Steel said on Oct. 9.

The firm said in a statement that the October-to-December quarter would not be the traditional peak season for the industry this year, with most producers facing the duel challenge of a slowing global economy and weak demand.

Although recovering raw material costs have helped boost steel prices in China recently, it is still too early to say if the market will bottom out this quarter, considering the persistent problem of regional oversupply, China Steel said.

Against this backdrop, the company has to cut prices to boost sentiment and help maintain its customers’ global competitiveness, it added.

Following the latest price adjustments, the price of benchmark hot-rolled sheets and coils will fall by NT$800 per tonne, while that of hot-dipped, zinc-galvanized sheets will be NT$186 per tonne lower.

The company is also lowering the price of steel plates used in construction by an average of NT$80 per tonne and steel bars and rods by an average of NT$1,300 per tonne.

However, it decided to maintain the price of cold-rolled sheets and coils, which are used typically in the automotive industry, as well as electro-galvanized sheets and electrical sheets, the statement said.

Grand Cathay Investment Services Corp (大華投顧) analyst Tsai Yen-ling (蔡燕鈴) has adjusted downward the firm’s profit forecast for China Steel this year, saying it is likely to report its lowest profits in a decade.

Tsai said she expected the firm to report a net income of NT$5.04 billion, or EPS of NT$0.33, down 74.2 percent year-on-year, on revenue of NT$204.8 billion, down 14.8 percent from the previous year, according to a separate note.

For next year, China Steel is expected to see an improvement in its earnings and revenue from this year, despite muted concerns about the eurozone debt crisis, Tsai said.

Net income is likely to grow 57.7 percent to NT$7.97 billion, or an EPS of NT$0.53, and revenue by 2.3 percent to NT$209.6 billion, she said.

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