China Steel Corp (中鋼) posted a pretax profit for the third straight month last month, but the nation’s largest integrated steel maker faces continued headwinds this quarter and next quarter, because of global economic uncertainty and an industry-wide glut triggered by increased Chinese exports, analysts said.
“The ongoing debt problem in Europe has dampened market visibility on demand and caused customers to be conservative this year,” Grand Cathay Investment Services Corp (大華投顧) analyst Tsai Yen-ling (蔡燕鈴) said in a note yesterday.
Tsai’s remark came after the Greater Kaohsiung-based company on Tuesday reported a pretax profit of NT$1.056 billion (US$35.3 million) for last month, which was 49.15 percent higher than the previous month.
On an annual basis, last month’s pretax profit plunged 68.08 percent from the same month of last year, the company said in a statement.
Revenue for last month increased by 3.24 percent to NT$20.091 billion from the previous month, down 5.18 percent from a year earlier, it said.
Tsai maintained her profit forecast for China Steel for this year, expecting net income of NT$12.1 billion, or earnings per share of NT$0.81, down 37.7 percent year-on-year, on revenue of NT$229.1 billion, down 4.7 percent from last year, according to the note.
While lower prices of raw materials such as iron ore have helped China Steel post a pretax profit of NT$786 million in the first five months of the year, the numbers were nearly halved from the NT$14.384 billion China Steel reported in the same period of last year, reflecting still-weak market sentiment so far this year.
“The spot steel prices dropped by US$20 to US$30 per tonne recently in the East Asian market because of increased Chinese steel shipments,” IBTS Investment Consulting Co (台灣工銀投顧) analyst Mandy Lin (林秋香) said in a separate note.
“East Asian steel market demand is expected to stay weak in the third quarter, before picking up in the fourth quarter on China’s easy monetary policies and infrastructure construction projects,” Lin said.
Lin expects China Steel to lower domestic prices by between US$10 and US$20 a tonne for its September deliveries next month, when the company announces its price adjustment plans, after it left domestic prices for July-August shipments mostly unchanged.
Shares of China Steel rose 0.53 percent to NT$28.2 on the Taiwan Stock Exchange yesterday, versus the TAIEX’s 0.80 percent increase.
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