Major steel companies see profits surge, pressure remains

A worker at a steel factory in Dalian, Northeast China's Liaoning province, August 10, 2016. [Photo/VCG]

BEIJING - China's major steel companies saw a profit turnaround in the first half (H1) of 2016, but the pressure of cutting overcapacity in the sector remains.

In a report filed to the Shanghai Stock Exchange, Shandong Iron and Steel Company said its net profits stood at 23.15 million yuan ($3.5 million) in H1, surging over 210 percent year on year.

Net profits for Inner Mongolia Baotou Steel Union reached 27.52 million yuan in the first half, an increase of over 117 percent year on year.

Sansteel Minguang Company in Fujian Province saw H1 net profits jump more than 233 percent year on year to 360 million yuan.

Of the 19 steel companies that have already released their profits in the first half of the year, 13 companies reported profit rises, with eight seeing profits more than double.

The total net profits of the 19 steel companies reached 2.3 billion yuan in H1, compared with a loss of 1.57 billion yuan during the same period last year.

Both Shandong Iron and Steel Company and Inner Mongolia Baotou Steel Union said that rising steel prices in the second quarter contributed to profits.

Steel makers have faced difficulties over the past few years, due to shrinking demand and excessive capacity building up during decades of rapid expansion.

However, steel price have risen in the past few months amid temporarily strained supply as some producers scaled back output to avoid losses.

The Complex Steel Price Index released by the China Iron and Steel Association hit 67.83 at the end of June, up 11.46 points on the beginning of the year.

But the pressure of cutting overcapacity still remains for the steel sector, with progress slow in some regions.

In the first seven months of the year, China only achieved 38 and 47 percent of its annual reduction targets for the coal and steel sectors, respectively.

China plans to cut steel and coal capacity by about 10 percent - as much as 150 million tons of steel and 500 million tons of coal -- in the next few years, with 100 billion yuan set aside to help displaced workers.

The government aims to reduce steel production by 45 million tons and cut coal capacity by 250 million tons this year.

In July, China's cabinet called for all-out efforts to meet overcapacity reduction targets in the steel and coal industries.

The market mechanism should be used to advance capacity reduction, which is a major task in the country's supply-side structural reform drive, according to a statement released by the State Council.