China Steel Demand Rebounding as Nation Adds Railways, Cars
meanwhile gbg is getting smashed!
Growth in demand for steel in China, the world’s biggest consumer, is set to rebound from a four-year low, supporting earnings for mills and the iron ore producers that supply them.
Apparent consumption, which includes production and net imports, may rise 4.6 percent to 708.8 million metric tons in 2013, according to the mean estimate of six analysts surveyed by Bloomberg News. That’s up from 2012 when demand grew by 2.9 percent to 677.8 million tons.
Enlarge image Steel pipes are loaded onto a truck at a storage yard in Shanghai. Photographer: Tomohiro Ohsumi/Bloomberg
The growth will benefit Vale SA (VALE5), Rio Tinto Group (RIO) and BHP Billiton Ltd. (BHP), the world’s top three exporters of iron ore as China plans to spend 650 billion yuan ($105 billion), the most in three years, on railways. The strongest start to passenger car sales in China since 2010 is also helping mills such as Baoshan Iron & Steel Co. raise prices to the highest since June.
“The urbanization process will generally support steel demand over the long run,” He Wenbo, chairman of Baoshan Steel, China’s biggest listed steelmaker, said in an interview last week in Beijing. Baoshan supplies half the steel used in cars and home appliances in China.
The nation’s crude steel production gained 9.8 percent to 61.83 million tons last month from a year earlier, the National Bureau of Statistics said March 12. That follows record January production of 63.62 million tons.
London-based Rio and Melbourne-based BHP have rallied 23 percent and 13 percent respectively in Sydney trading from Sept. 5 to yesterday as iron ore rebounded from a near three-year low. Ore has climbed 60 percent since then, driven by restocking from Chinese steelmills. Baoshan Steel rose 11 percent in Shanghai trading in the same period.
Boosting Growth
China is lifting railway spending from 631 billion yuan last year, the official Xinhua News Agency reported Jan. 17 as it seeks to have 120,000 kilometers (74,580 miles) of track in operation by 2015.
“China has since the second-half of last year implemented measures to stabilize the economy,” Hu Zhengwu, a Beijing-based researcher with Baosteel Group Corp., China’s third-biggest steelmaker and parent of Baoshan, said in an interview. “We think the new government will extend such measures to boost the growth.”
That may help improve profits at mills including Angang Steel Co. and Maanshan Iron & Steel (323) Co. Aggregate earnings at the nation’s major steel mills tumbled 98 percent to 1.58 billion yuan last year, the China Iron and Steel Association said Jan. 31. Of the mills, 29 percent incurred losses, it said.
Improve Earnings
Anshan, Liaoning province-based Angang, which probably recorded a loss of about 4.16 billion yuan in 2012, may swing to profit of 502 million yuan this year, according to the mean of 15 analyst estimates compiled by Bloomberg News. Maanshan, Anhui province-based Maanshan Steel may narrow its loss to 196.4 million yuan in 2013, from a probable loss of as much as 3.95 billion yuan, according to the mean estimate of 14 analysts.
Last week’s unexpected price increase by Baoshan Steel “injected confidence in steel demand,” Helen Lau, a Hong Kong- based analyst with UOB Kay Hian Ltd., said in a note to clients last week.
Baoshan raised hot-rolled and cold-rolled steel products for April delivery by 150 yuan a ton, the company said March 8. It’s raised prices for six straight months.
Passenger-vehicle sales rose 20 percent to 2.84 million units in January and February from a year ago, according to the China Association of Automobile Manufacturers, beating the average estimate of five analysts surveyed by Bloomberg by 11 percent.
Better Year
Still, steel demand may be hurt after the government announced measures to tame home prices, including a 20 percent tax on individuals selling properties, according to UOB’s Lau. The tightening may reduce steel consumption by 1 percent to 702 million tons from an earlier forecast of 708 million tons, Lau said in a separate note on March 4. Property accounts for 33 percent of China’s total steel demand, she said.
That isn’t a concern for mills, Baoshan’s He said, who said the steel industry is improving from a low last year. At 2.9 percent, 2012’s growth would be the slowest since 2008 according to World Steel Association data.
“The steel industry hit a trough last year,” Baoshan’s He said. “This year would be better.”
To contact Bloomberg News staff for this story: Helen Yuan in Shanghai at [email protected]
To contact the editor responsible for this story: Jason Rogers at [email protected]
