Chinese steelmakers to see profits squeezed in 2006

Chinese steelmakers to see profits squeezed in 2006

The halcyon days of 2004 may soon be a distant memory as higher raw material costs and a decrease in domestic steel prices have begun to put the squeeze on Chinese steelmakers. According to China’s Assets Supervision and Administration Commission (ASAC), the country’s 38 largest state-owned steelmakers saw a 27 percent year-on-year increase in their first half 2005 profits. While the combined profits of the 38 steelmakers rose to RMB 44.5 billion ($5.5 billion), the growth represents a major slowdown compared to the 96 percent increase in profits during the first six months of 2004. The directors of the companies blame high long-term iron ore contract prices, which increased 71.5 percent this past April, for the drop in profits. Furthermore, the slow down in real estate investment due to Beijing’s macro-control policy has been a major factor in the decrease of domestic steel prices. The price of construction steel fell approximately 8.5 from January 1 to July 1, while cold rolled steel sheet prices fell 7.1 percent during the same period. According to the ASAC, steelmakers may face a tougher year in 2006 due to high coke and iron ore prices. The commission points out that the economic growth of the country fell to 9.5 percent in the first half. The commission expects 9 percent economic growth for 2005 as a whole, with more declines on the horizon in 2006.