Massive 41.6% Drop in Profits for Baosteel in First Half Due to Sluggish Steel Demand

Baoshan Iron & Steel, China's prominent steelmaker listed on the stock exchange under 600019.SS, recently shared its financial performance for the first half of 2023. The report highlighted a 41.6% decrease in net profit, reflecting a challenging landscape where subdued steel demand impacted earnings and elevated raw material costs put pressure on profitability.

According to the disclosure presented to the Shanghai Stock Exchange, the company generated a total of 4.55 billion yuan (equivalent to $624 million) in the initial half of the year. This marked a decline from the 7.79 billion yuan recorded during the same period in the previous year, 2022.

Baosteel, a subsidiary of the renowned China Baowu Steel Group, recognized as the world's largest steel producer in terms of output, faced a 7.5% reduction in sales revenue during the first six months of the year. The figures amounted to 169.9 billion yuan. This period also saw a marginal dip of 1.13% in the company's shares, now trading at 6.1 yuan per share.

In its interim report, Baosteel acknowledged the subdued state of domestic steel demand in the current year. While anticipating a rebound in demand from sectors like real estate, automobiles, engineering, and containers, the actual recovery pace has been slower than anticipated.

Despite observing year-on-year declines in the prices of key steelmaking components like iron ore and coal, the decrease in steel product prices surpassed that of raw materials. This trend can be attributed to the sluggish downstream demand prevailing in the market.

The second half of the year holds the promise of an improved steel demand due to strategic measures aimed at stabilizing economic growth. However, the implementation of initiatives related to energy consumption and environmental protection is expected to lead to a decrease in production output, as indicated by Baosteel.

It's essential to note that overseas steel demand and prices have also experienced a downward trajectory, which in turn will impact the export of steel, according to Baosteel's assessment.

During the initial six months of the year, Baosteel successfully produced 24.27 million metric tons of pig iron and 25.94 million tons of steel. Comparatively, China's overall production of crude steel for the same duration showcased a year-on-year increase of 1.3%, with a total output of 535.64 million metric tons, as indicated by official data sources.

Source : Reuters (Reporting by Amy Lv and Dominique Patton)