August 22, 2014 / 11:11 AM / 3 years ago

China's Baosteel first-half net drops 14.8 pct on weak steel prices

SHANGHAI, Aug 22 (Reuters) - Baoshan Iron & Steel Co Ltd (Baosteel), China’s biggest listed steelmaker by stock market value, posted a 14.8 percent fall in first-half net profit, reflecting weak prices and slackening demand growth, the company said on Friday.

Net profit dropped to 3.15 billion yuan ($512.1 million) from 3.7 billion in the same period last year, the company said in a filing to the Shanghai stock exchange. It did not provide profit figures for the April-June quarter.

China’s steel sector is facing its biggest challenges since the global financial crisis of 2008, as mills deal with heavy debt loads, chronic oversupply and mounting environmental protection costs.

Beijing’s move to rein in the construction sector, the main driver of the country’s steel consumption, as well as its shift away from infrastructure investments, have also has caused demand growth to slacken, casting doubts on the outlook for the two commodities.

“In the face of severely difficult market conditions, the company adapted to changes in market demand and proactively optimised its product structure, working hard to improve its manufacturing capabilities,” the company said.

Based on its first-half results, Baosteel’s profit in the April to June quarter was 1.75 billion yuan, down 15.9 percent from year ago and marking a second straight quarter of falling profits, according to Reuters calculations.

Net profit in the first quarter fell 7.2 percent from year ago to 1.5 billion yuan.

China’s steel demand in the first six months of 2014 rose just 0.4 percent from a year earlier to reach 376 million tonnes, versus a 3 percent rise in actual production of 412 million tonnes, data from the steel association showed.

The burgeoning oversupply has caused Shanghai steel rebar futures to drop nearly 20 percent so far this year and has sent iron ore prices .IO62-CNI=SI down nearly a third to as low as $89 a tonne.

The slump in steel prices has also hit a raft of other Chinese mills, with Angang Steel posting a 18 percent drop in first-half profit and SGIS Songshan swinging to a net loss of 736 million yuan, from a net profit of 11 million last year.

$1 = 6.2530 Chinese Yuan Reporting by Fayen Wong

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