Large and medium steelmakers profits fell 94.26% yoy for Jan-May2 July, 2012, 13:21. Posted by Zarathustra
The evidence of slowdown of the Chinese economy continues. Earlier, we mentioned a note from Nomura noted that official NDRC data shows that steelmaker’s profits fell by 49.5% yoy from January to April, while large and medium sized steelmakers’ profit fell 97% yoy from January to April.
Today, Economic Information reports that key large and medium sized steel mills revenue for May has dropped 2.05% from April, while profits fell 21.66% to RMB1.403 billion. On a year-on-year basis, profits for January to May this year fell by 94.26% compared to a year ago, citing China Iron and Steel Association figures (as the sources are different, this may not be entirely comparable to NDRC data). Return on investment for January to May has fallen to a mere 0.17%, which is way below the costs of financing, meaning that these companies are destroying economic value. Meanwhile, companies that are making loss are on the rise as well, with loss-making companies making 31.25% more losses in May compared to previous month.
The China Iron and Steel Association told journalists that the dramatic fall in profits is because of the fall in steel prices while the costs side are increasing. Because of the economic slowdown, demand for steel is weak, but over-capacity remains as serious as ever, thus profits. The on-going weakness in real estate and the slowdown in railways projects are key factors that depress demand, but demand for steel from industries, like autos, shipbuilding, machinery, and light industries, are also sliding.
The difficulties in the steel industry continues to add to the long list of evidence suggesting that China is now entering a very difficult and challenging economic environment, to say the least.