by winston » Wed Aug 13, 2008 8:07 pm
Not vested.
Angang expects slower growth in China steel demand
HONG KONG, Aug 13 (Reuters) - China's Angang Steel (0347.HK: Quote, Profile, Research, Stock Buzz), one of the country's top three steel producers, said growth in Chinese demand will slow in the second half and production costs are expected to rise faster than product prices.
China's steel consumption rose about 16.3 percent in the first six months of 2008 but is expected to ease to 13 percent growth in the second half, an Angang director, Fu Jihui, told reporters at a news conference on Wednesday.
Angang (000898.SZ: Quote, Profile, Research, Stock Buzz), the largest listed steel producer in Hong Kong, said net profit rose to 6 billion yuan ($874.5 million) in the first half, from 4.8 billion yuan a year earlier, on higher steel prices and lower tax payments.
But its shares extended losses after the executive's comments and hit a 17-month low of HK$10.16 before recovering slightly to close at HK$10.3, down 3 percent.
The stock has lost more than half of its market value this year, underperforming a 31 percent loss on the index for major Chinese companies listed in Hong Kong .HSCE, on concerns about weakening steel prices and rising production costs.
High production costs in the second half of this year could put pressure on its gross profit margin, which was 27.8 percent in the first half against an average of 26.5 percent in 2007.
"The new iron ore contracts started from April, which will heavily inflate our costs," Vice Chairman Tang Fuping said.
The 85 percent iron-ore price increase in 2008 contracts will be fully factored in second-half 2008
and first-half 2009 results, BNP Paribas said in a recent research note.
The price of coking coal is also rising and was at 1,800 yuan per tonne in August, nearly double the average of 990 yuan a tonne in the first half of the year, Tang said.
Large steelmakers in China, the world's top steel producer, have aggressively expanded in recent years to help meet booming demand from the infrastructure, shipbuilding and auto sectors.
Average steel prices in the third quarter were around 5,800-5,900 yuan per tonne against an average price of 5,200 yuan in the first half.
"We expect that steel prices peaked in the second quarter of 2008 and may weaken in the second half," BNP said.
"With high steel prices, steelmakers are much more sensitive to steel-price downside than before," it added.
It's all about "how much you made when you were right" & "how little you lost when you were wrong"