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Eric Ng

Shanghai-based Baoshan Iron & Steel, the mainland’s most profitable steel producer, posted a preliminary net profit of 5.82 billion yuan (HK$7.39 billion) for last year, which is flat compared to 2013.
Sales fell 0.84 per cent to 188.4 billion yuan last year from 2013, it said in a filing to Shanghai’s stock exchange on Wednesday.
The profit was 15 per cent lower than the 6.89 billion yuan average estimate of analysts polled by Thomson Reuters, which two analysts told the Post may be due to non-cash asset impairment charges amid depressed steel prices. They cannot be named due to company policy.
“Baoshan has not disclosed the reason, but I suspect the lower than expected profit was caused by some non-cash impairment items,” said a Shanghai-based analyst covering the stock. “Its business fundamentals should still be good.”
Baoshan’s spokesman could not be reached.
The company’s filing said its profit was affected by lower steel prices and downtime caused by facilities maintenance. It did not elaborate.
Baoshan booked fixed assets write-downs of 1.19 billion yuan in 2013.
Analysts’ consensus net profit estimate for Baosteel this year is 8.13 billion yuan, according to Thomson Reuters.
JP Morgan’s analysts quoted management as saying in a November research note that Baosteel was expecting its 8 million tonne-a-year steel plant to come on stream in this year’s third quarter.
Baosteel is targeting to raise its annual output capacity to 34 million tonnes by 2018. It sold 22 million tonnes of products in 2013.
The company planned to boost its ouput of consumption-related, high-end flat steel products. Some 32 per cent of its products are sold to the automobile sector, where it has a 50 per cent market share, JP Morgan’s report said, adding its dominant position allowed it to charge a price premium.
“[Baoshan] accounted for 36 per cent of the total profits registered by medium to large-sized steel mills [on the mainland], even though it only accounts for 3 per cent of crude steel output and 5 per cent of sales revenue,” they said.


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