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Steel mills still in recovery: expert

By Song Shengxia (Global Times)

08:49, November 26, 2012

Major steel companies in the country are still suffering from losses in their main steel making business, even though they returned to making a profit in October thanks to their non-core businesses, the deputy head of China's steel trade association said over the weekend.

"This year has been the toughest for the country's steel industry since the beginning of the 21st century," Liu Zhenjiang, vice president of the China Iron and Steel Association (CISA), said Saturday at a forum in Beijing.

Chinese steel makers reported a total loss of 5.5 billion yuan ($874.32 million) for the first three quarters this year, compared with total profits of 83.6 billion yuan in the same period of 2011, according to data from the CISA.

According to Liu, large and medium-sized steel firms started making an overall profit again in October, but only thanks to non-core operations in sectors such as real estate and livestock.

Wuhan Iron and Steel (Group) Corp earned 3.5 billion yuan in profit last year, with 2.08 billion yuan or around 60 percent coming from non-core businesses such as transportation, logistics and machinery manufacturing. The company also started investing in pig breeding and e-commerce this year.

The situation will be better for the steel industry in the fourth quarter and next year, but overcapacity in the sector will still be a problem in the near future, Liu said.

"The slowdown in the economy bottomed out in the third quarter of the year and the government has sped up approval of projects since September, bolstering the market sentiment," Wang Guoqing, a senior analyst at Beijing Lange Steel Information Research Center, told the Global Times Sunday.

"The demand for steel has rebounded since September, pushing up prices and boosting the revenue of steel makers in October," Wang said.

But whether the steel industry can reverse the loss for the entire year will depend on the country's overall economy in the coming month, Hu Yanping, an analyst at industry portal, told the Global Times Sunday.

The economic recovery has been gaining momentum in the fourth quarter so far. A preliminary reading of China's manufacturing Purchasing Managers' Index (PMI), a gauge of performance in the manufacturing industry, rose to 50.4 in November from a final reading of 49.5 in October, representing the first expansion in 13 months, HSBC Holdings PLC said Thursday.

China's exports surged by 11.6 percent year-on-year in October, the fastest growth in five months, and retail sales expanded by 14.5 percent year-on-year, hitting a seven-month high.

"Many infrastructure projects, which account for between 25 percent and 30 percent of the demand for steel products, will be implemented after the Chinese New Year. So the market consensus is that the steel market will stabilize next Spring," said Wang from Beijing Lange Steel Information Research Center.

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