Major Chinese steel makers' net profits down 43% in 2008

Special Report:Global Financial Crisis

by Chinese media writer Li Baojie

BEIJING, Feb. 23 (Chinese media) -- The China Iron and Steel Association (CISA) said Monday that the aggregate net profit of 71medium-sized and large steel producers fell 43 percent in 2008 as weak demand drove down prices.

Net profit was 84.6 billion yuan (12.4 billion U.S. dollars), CISA said, while sales climbed 24.7 percent year on year to 2.57 trillion yuan.

The 71 producers earned 101 billion yuan of net profit in the first half of 2008, but they lost 16.4 billion yuan in the second half as costs rose while selling prices declined.

CISA also said 15 steel producers recorded full-year losses totaling 8.5 billion yuan.

A composite index measuring the domestic steel prices fell 36 percent by the end of December compared with six months ago.

IDLE CAPACITY

Last year China's crude steel output edged up 1.13 percent to 500.5 million metric tons. The growth rate was 14.5 percentage points lower than a year ago.

The steel production capacity reached 660 million metric tons by the end of last year, which shows some 160 million metric tons of capacity were left idle.

"Clearly there exists excessive capacity," Luo Bingsheng, CISA's executive deputy director, told a press briefing, "Our important and urgent task is to control capacity."

The 10 largest steel companies produced 212.7 million metric tons, or 42.5 percent of the total output. The proportion was 5.71 percentage points higher than 2007 because of several industry mergers and acquisitions.

IRON ORE TALKS

China imported 443.7 million metric tons of iron ore last year, an increase of 60.6 million metric tons than a year earlier.

The iron-ore talks on the new fiscal-year contracts, which starts April 1, went smoothly, Luo told reporters, adding the contracts prices would reflect the current demand and supply situation. He declined to disclose details.

China would like to stick to the practice of striking long-term contracts and to see big cuts in iron ore prices, he said. China also hoped the fiscal year for iron ore contracts could start on Jan. 1 as steel firms could better planning their annual production, he noted.

Chinese steel producers opposed the initiative to set up an iron ore price index system to replace the current annual benchmark pricing system, Luo said. "Conditions 'for the proposed system' do not exist."

In general the CISA encouraged and supported steel companies to buy stakes in overseas miners in an effort to secure stable supply of production materials, Luo stated. But he added the businesses did their own analysis and made their own decisions.