Market Segment

Baosteel: China Prices to Fall in H2 Due to Oversupply

August 28, 2013

Oversupply is likely to weaken China steel prices in the second half of 2013 said Baosteel General Manger Dai Zhihao to analysts on Monday.

Profit margins have fallen in China with Baosteel reporting a 61.47 percent year over year drop in earnings for the first half of 2013.

Overcapacity of nearly 300 million surplus tonnes in China is overpowering steel demand and limiting economic recovery for the industry. Supply is expected to continue to outpace steel demand in the months ahead.

“The rebound is lacking in strength to be sustained in the near term, and steel prices will be volatile in the second half and weaker than the first half due to uncertainties in demand and oversupply,” said Dai.

Iron ore prices are expected to rise faster than steel prices in China and cut into profits for the third quarter.

The supply glut has Beijing instituting credit measures to limit credit access to the sector. Baosteel has no plans for mergers or acquisitions for its steel business in the coming years but instead will try to increase its non-steelmaking businesses to as much as 50 percent of company profits.

Baosteel currently has a project in Zhanjiang, begun in 2012, that has an annual capacity of 9 million tonnes of crude steel. Planned start-up for the facility is in 2016. (Source: Reuters)