Global Steel Industry’s Renaissance on Show as Profits Surge

(Bloomberg) -- The global steel industry is on the mend, at least for now. China’s Baoshan Iron & Steel Co. has kicked off the earnings season for the quarter to September by reporting a jump in profit that’ll probably presage similar figures from producers in Asia, Europe and the U.S.

The listed unit of Baosteel Group Corp., the steelmaker that’s merging with a local rival to become China’s biggest, posted net income of 2.13 billion yuan ($315 million) in the period, compared with a loss a year ago, as sales rose 34 percent, according to a statement late on Monday. Full-year earnings may surge as much as 800 percent, the Shanghai-based mill said.

Steel prices have rallied this year after China’s government aided demand with a credit-and-infrastructure splurge, resuscitating mills’ profit margins that’d been squeezed last year amid a global glut of metal. Hesteel Co., the listed unit of the group that’s still China’s top producer, will confirm earnings on Wednesday after saying it expects higher net income. South Korea’s Posco and Japan’s JFE Holdings Inc. are also due to turn in their report cards this week.

“The steel market on the whole picked up in the third quarter,” Baoshan Steel said in the statement that was released after the close of trade. The quarterly net income figure was the company’s biggest since 2012. Still, it added: “The industry situation of supply exceeding demand still persists.”

Shares in Baoshan, which bottomed this year in Shanghai at 4.83 yuan in February, rallied as much 4 percent to 5.79 yuan on Tuesday and traded at 5.69 yuan by 11:00 a.m. Hot-rolled coil, used in buildings, cars and machinery, has surged more than 40 percent in 2016 on the Shanghai Futures Exchange, after plunging in 2015. Prices returned Tuesday to their highest level since April, when steel prices spiked as the government’s stimulus measures fed through to better demand.

Reduce Overcapacity

China’s government has been promoting mergers in the world’s largest steel industry to reduce overcapacity and create fewer, more efficient mills. State-owned Baosteel will become China’s largest mill -- and the global No. 2 by output -- when it takes over Wuhan Iron & Steel Group Corp. in a merger granted approval this month.

Mills in India including JSW Steel Ltd. are also expected to report better quarterly figures after products prices rose, the government moved to stem a tide of cheap Chinese imports and some producers boosted output. In Japan, steelmakers may find their performance undermined by the strength of the Japanese yen, which has surged in 2016.

“If you compare year-on-year basis, things are looking a little better, especially in terms of the margins,” Goutam Chakraborty, an analyst at Emkay Global Financial Services, said from Mumbai. “Volumes will be higher and that is going to drive the top line for all companies. Imports have almost stopped and companies like JSW Steel are also exporting.”

--With assistance from Swansy Afonso To contact Bloomberg News staff for this story: Martin Ritchie in Shanghai at mritchie14@bloomberg.net. To contact the editors responsible for this story: Jason Rogers at jrogers73@bloomberg.net, Keith Gosman, Jake Lloyd-Smith