Baoshan Says Steel Prices May Drop Before Demand Rebound in Fourth Quarter

Baoshan Iron & Steel Co., China’s biggest publicly traded producer, said prices are likely to decline before demand revives in the fourth quarter.

“Domestic prices are under pressure to trend lower because of falling demand and a removal of tax rebates, which hurts exports,” Baoshan General Manager Ma Guoqiang said today in an online investors conference. “Demand in some sectors may post a seasonal rebound in fourth quarter.”

Baoshan, supplier of half the domestic market for auto sheet, may post a profit of as much as 1.6 billion yuan ($235 million) in the third quarter, the smallest in five quarters as demand slows and high prices of raw materials shrink margins. Domestic steel prices fell 1.9 percent last week, the first drop in six, amid concerns slowing economic growth may curb demand.

Baoshan gained 2.4 percent to close at 6.47 yuan today in Shanghai after posting a first-half profit that beat analyst estimates. The key Shanghai Composite Index gained 1.6 percent.

First-half profit surged to 8.05 billion yuan, or 0.46 yuan a share, from 669 million yuan, or 0.04 yuan, a year ago, the company said Aug. 27. A Bloomberg survey of eight analysts had forecast a mean earnings of 0.408 yuan a share.

Tax Rebate

China’s government removed export tax rebates of as much as 13 percent on flat steel, including hot-rolled coil, starting July 15. Rival Angang Steel Co. said Aug. 20 the incentive removal may reduce its profit by 100 million yuan, assuming export volumes remain unchanged in the second half from the first.

Baoshan was almost unaffected because the tax-rebate removal does not affect most its products, Ma said.

The company is negotiating contract iron ore prices for the fourth quarter, Ma said. Iron ore costs gained 32 percent in the first half from a year ago, Vice President Chen Ying said at the same conference.

The company plans to raise its steel production by 11 percent to 26.4 million metric tons this year, Chen said. Parent Baosteel Group Corp., the nation’s second-largest after Hebei Iron & Steel Group, produced 39 million tons in 2009.

Baosteel has yet to receive the central government’s approval to build an annual 10 million ton steel plant in Zhanjiang, Guangdong province, Chen said. The project had received a go-ahead from the National Development & Reform Commission, China’s top planning agency, the Southern Metropolis Daily had reported on Aug. 16.

Baoshan is getting financing from convertible bonds, medium-term bills, U.S.-dollar loans and trade financing, Chen said.

--Helen Yuan. Editors: Indranil Ghosh, Tan Hwee Ann

To contact the Bloomberg News staff on this story: Helen Yuan in Shanghai at hyuan@bloomberg.net

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