China’s Baosteel says profit could weaken in 2009

Baoshan Iron and Steel Co, the listed unit of China’s largest steel mill, said on Thursday it would be hard to achieve a 2009 net profit at this year’s level as it confronts weak demand.

The comments came after Baosteel, the world’s fifth-largest steelmaker, late on Wednesday reported a weaker-than-exected 19.2 percent rise in third-quarter net profit and said key product areas would see losses in the fourth quarter, due to falling domestic steel prices and high raw material costs.

“It will be very difficult for Baosteel to maintain its 2009 earnings at the same level as this year’s, as a medium-term correction has begun in the steel industry,” Baosteel Board Secretary Chen Ying told an online briefing.

Several analysts lowered their forecasts for Baosteel’s 2008 and 2009 earnings after the third-quarter announcement.

Shanghai-based Orient Securities said on Thursday in a note that it expected the company’s earnings per share at 0.68 yuan in 2008 and 0.41 yuan in 2009.

The forecast for 2008 suggested Baosteel could see a loss of around 500 million yuan ($73.13 million) in the fourth quarter.

The global economic slowdown, coupled with a domestic housing slump, has hit China’s domestic demand and exports.

Top steel mills have cut output by up to 20 percent partly due to hefty inventories that are losing value and hurting their cash positions.

Baosteel now has inventories worth about 52.1 billion yuan, Chen said, including 17.7 billion yuan of raw materials and 16.3 billion yuan of finished products.

Sources close to Baosteel Group, the listed unit’s parent company, said earlier this month that the group would cut production by about 1 million tonnes in conjunction with an overhaul of a major blast furnace.

Chen did not comment directly on output cuts, however, saying only that the company would schedule its production in the remainder of the year in accordance with orders it received.

Cui Jian, vice president of Baosteel, told the briefing that Baosteel’s state-owned parent was studying a possible increase in its shareholding in the listed unit but the company itself was not considering buying back its shares.

Baosteel’s Shanghai-listed shares were up 0.22 percent at 4.61 yuan in afternoon trade, underperforming a 2.3 percent rise in the benchmark Shanghai Composite Index