外文报告：Nomura-China steel：Steel mills’ profits in 4M12 continued to fall-120622

China steel
METALS & MINING



EQUI TY RESEARCH


Weekly: 19-26 Jun (Vol. 16)?
Steel mills’ profits in 4M12
continued to fall



June 26, 2012

Highlights
 The NDRC revealed that Chinese steelmakers saw a sharp slip in profits
in the first four months to CNY39.5bn, down 49.5% y-y.
 The latest 10-day China crude steel production of 1.9994mt/day was up
2.03% from 20-31 May (1.9596mt/day), a 1.6% increase y-y, and
annualises to 732mt.
 We expect Chinese steel production to be flat y-y at 680mtpa for 2012F.
We see the risk of an inventory build-up in the domestic housing market
having a negative impact on construction demand for steel in 2012F.
Steelmakers’ profits plunged in 4M12, according to NDRC
The NDRC’s latest data showed that steelmakers’ profits in Jan-Apr 2012
plunged by 49.5% y-y to CNY39.5bn. In particular, profits of steel smelting
and processing companies plummeted by 68.8% y-y, and those of ferrous
metals mining and dressing companies by 7.9% y-y.
Further, the CEIC database showed that total profits of large and medium
enterprises in Jan-Apr 2012 plunged by 97% y-y from CNY32.98bn to
CNY1.15bn. Profits in April reached CNY2.18bn, up 23% m-m, yet down
74% y-y.
The YTD profit margin of large and medium enterprises through April 2012
was 0.1%, a significant deterioration from 2.86% in the same period last
year. Monthly profit margin increased slightly from 0.57% in March to
0.65% in April, yet remained 2.2pp lower than that in April 2011. We
estimate an implied ROA (annualised) of 0.6% for large and medium
enterprises, much lower than the 2.9% recorded in the same period last
year.
Spot price: HRC price down 13.2% y-y
Steel prices continued to fall across major products on a w-w basis. For
flat steel, the benchmark hot-rolled coil (HRC) price was down 0.4% w-w to
CNY4,290/t (-13.2% y-y) as of 21 June (incl. 17% VAT). For long products,
the price of rebar was down 0.2% w-w to CNY4,116/t (-17.7% y-y). On the
cost front, as of 22 June, the iron ore price was up 1.05% w-w to CNY960/t
for imports from Qingdao Port, down 0.18% w-w to USD135.5/t for imports
from India, and up 0.72% w-w to USD139/t for imports from Australia.
Inventory and production: Inventory was down 0.1% w-w and May
crude-steel output of 61.2mt was up 1% m-m
Steel inventory at traders was at 15,427kt (-0.1% w-w) as of 21 June, of
which 6,995kt was flat-steel products (+0.3% w-w) and 8,432kt was long-
steel products (-0.4% w-w). The NBS reported China’s crude-steel
production for May at 61.2mt, up 1% m-m (+1.6% y-y). 5M12 production
reached 296.3mt, up 1.1% y-y, yet down from 8.5% growth recorded
during the same period last year.
We reiterate our Reduce ratings on Angang and Maanshan



Research analysts

China Metals & Mining
Matthew Cross, CFA - NIHK
matthew.cross@http://wendang.chazidian.com
+852 2252 2199
Ivan Lee, CFA - NIHK
ivan.lee@http://wendang.chazidian.com
+852 2252 6213









See Appendix A-1 for analyst
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disclosures and the status of
non-US analysts.