* Sees steel demand resilient, but supply outpacing usage
* Says won't target China steel M&A in coming years
* Eyes as much as half of future profits from non-steel
By Ruby Lian and David Stanway
SHANGHAI, Aug 26 Chinese steel prices are likely
to weaken in the second half as supply continues to outstrip
demand, a senior executive with Baoshan Iron & Steel
, the country's biggest listed steelmaker by market
value, said on Monday.
Overcapacity in China, which produces nearly half the
world's steel, has thinned profit margins of domestic
steelmakers, limiting the impact of any recovery in demand.
Baosteel reported a 61 percent drop in first-half earnings.
With around 300 million tonnes of surplus steel capacity in
China - equivalent to nearly twice the output of the European
Union last year - Beijing is implementing measures to end the
glut including curbing credit access to the sector.
"The rebound is lacking in strength to be sustained in the
near term, and steel prices will be volatile in the second half
and weaker than the first half due to uncertainties in demand
and oversupply," Dai Zhihao, the company's general manager, told
analysts at a closed-door briefing, according to an analyst who
attended the meeting.
Dai said he expected steel demand to remain resilient over
the rest of the year, but warned that supply would continue to
He said the price of steelmaking raw material iron ore would
also rise faster than that of steel products in the third
quarter, eating into profits.
Chinese steel futures have lost about 8 percent so
far this year, but have been recovering since June, with demand
from end-users picking up ahead of September and October, when
demand is traditionally strong.
The drop in steel prices has similarly dampened appetite for
raw material iron ore, with spot prices .IO62-CNI=SI down
around 4 percent this year.
China's economy is showing clear signs of stabilisation,
helped by policy support and some improvement in global demand,
the state statistics bureau said on Monday.
However, worries over a supply glut means margins will
remain under pressure.
Japan's Nippon Steel & Sumitomo Metal Corp, the
world's biggest steelmaker by market value, said last week
excess supply from Chinese mills will cap gains in Asian steel
prices this year.
"During the next 12 months, (Asian) steelmakers' profits
will remain at a historically low level given the persistent
Chinese overcapacity," Moody's Rating Agency said in an Aug. 7
NO OUTPUT EXPANSION
Baosteel will not target any mergers or acquisitions in the
world's biggest steel industry in the coming years but may boost
investment in other sectors, the company's chairman said at the
briefing, according to the analyst.
"We will neither plan any expansion in steel production nor
consider taking the industrial downturn as an opportunity for
any acquisitions, but we do not rule out any chances to invest
in other new sectors," the analyst quoted He Wenbo as saying.
He said he sought to boost the share of non-steelmaking
businesses, including technical and financial services, to as
much as half of the firm's total profits in the future, as steel
oversupply has squeezed mills' margins. He did not provide a
Baosteel plans to start production at its integrated
Zhanjiang project in southeastern Guangdong province in 2016,
Dai added. The project, approved in 2012, has an annual capacity
of 9 million tonnes of crude steel.
Shares of Baosteel, which has a market value of about $11
billion, rose 1.2 percent on Monday amid a strong China stock
(Additional reporting by Manolo Serapio Jr in SINGAPORE;
Editing by Muralikumar Anantharaman)