Baosteel says outlook bleak after sharp fall in 2013 profit

SHANGHAI, March 28 Fri Mar 28, 2014 11:22am EDT

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SHANGHAI, March 28 (Reuters) - Baoshan Iron & Steel Co Ltd (Baosteel), China's biggest listed steelmaker by market value, said it expected no significant improvement in the industry's prospects this year after posting a 42 percent fall in net profit for 2013.

Chinese steelmakers are facing their toughest period since the global financial crisis as they battle sluggish demand growth, massive output surpluses, and mounting environmental protection costs as Beijing pushes to restructure its bloated industries.

Baosteel's net profit for 2013 was 5.82 billion yuan ($936.75 million), the company said, as overcapacity and slower demand growth hit prices.

"In 2014, China's steel industry will continue to operate with tiny profit, with no big improvement in sight," the firm said in a filing to the Shanghai stock exchange on Friday.

"The situation of steel overcapacity and oversupply as a result of weaker demand from downstream customers will continue to persist in the short term."

The Shanghai-based firm said in January it expected a sharp fall of 44.4 percent in last year's net profit. Its preliminary results showed that the 2013 net profit was 5.78 billion yuan.

China's steel sector faces huge challenges this year. The government has decided to consolidate ill-regulated industrial sectors and improve air quality by cracking down on outdated and polluting mills.

Beijing has also cautiously stepped aside to let market forces play a bigger role in deciding winners and losers and tightened lending, which may leave many heavily-indebted smaller private steel firms exposed to defaults.

Many banks have reduced lending for industries including steel, shipbuilding, and cement. Some steel mills were told by banks that their 2014 credit limit would be 20 percent below the amount they borrowed last year.

"Some smaller mills have to import iron ore at higher prices by getting letters of credit from banks which allow them to pay a small portion first to ease their credit crunch, rather than paying cash to purchase cheaper materials sitting at ports," said an iron ore trader in coastal Shandong province.

Some steel mills in the top producing province of Hebei and eastern Jiangsu province have stopped production due to financial troubles.

Baosteel's chairman, He Wenbo, said earlier this month that the Chinese steel industry's total production was actually getting close to its peak and more steel firms could be forced to shut this year due to economic pressures.

($1 = 6.2130 Chinese yuan) (Reporting by Ruby Lian, Samuel Shen and Fayen Wong; Editing by Matt Driskill and Pravin Char)

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