March 15, 2019 / 12:35 PM / 4 days ago

China pork producer WH Group's quarterly profit falls 7 percent

BEIJING (Reuters) - China’s WH Group said on Friday its fourth-quarter net profit fell 7 percent to $290 million, as low pig prices in China and the Sino-U.S. trade war hit the income of the world’s top pork producer.

FILE PHOTO: Workers sort cuts of fresh pork in a processing plant of pork producer WH Group in Zhengzhou, Henan province China, November 24, 2017. Picture taken through glass. REUTERS/Dominique Patton/File Photo

The decline, based on a comparison of nine-month and full-year numbers released on Friday, underlined challenges faced by pork producers around the world.

Net profit for 2018 came to $1.05 billion, WH Group said, down 4 percent from the previous year. Revenue rose 1 percent in 2018 to $22.61 billion, it said in a statement.

WH Group, which owns U.S.-based Smithfield Foods Inc, said average pork prices in the United States dropped 9 percent in 2018 due to higher supplies from an expanding slaughter sector.

Also, the China-U.S. trade war has hit pork shipments between the two countries. In April, China slapped a 25-percent import duty on most U.S. pork products in response to U.S. tariffs on Chinese steel and aluminum products.

Pork products were also included in a second round of tariffs of 25 percent introduced in July.

Speaking to reporters, WH Group chairman Wan Long said the group’s pork shipments from Smithfield Foods to Shuanghui, its Chinese business, tumbled 45 percent last year due to the trade dispute.

Weak exports and expansion of output in the United States pushed down pig and pork prices, and hurt company profit, Wan added.

Lower pork prices in China due to an outbreak of severe African swine fever disease also hurt the competitiveness of U.S. exports, WH Group said.

China is battling a fast-spreading epidemic of African swine fever. The disease has now spread to 28 provinces and regions since the first outbreak in August last year.

Pig prices in major production regions fell sharply late last year after a government ban on live hog transport restricted trade and caused oversupply.

But prices have started to recover in the past weeks, in early signs that the deadly African swine fever has slashed production in the world’s largest pig herd.

The Ministry of Agriculture and Rural Affairs said on Friday that China’s pig herd shrank 16.6 percent in February from the previous year due to the disease.

China made its biggest purchases of U.S. pork in nearly two years last week, U.S. Department of Agriculture data showed on Thursday, as Chinese hog prices surged higher.

Live hog prices in China hit a 14-month high this week.

Pig prices in China are set to rise significantly in the second half of the year and next year, Ma Xiangjie, President of Shuanghui, told analysts.

Hong Kong-listed shares of WH Group are up more than 30 percent since the start of the year as the market expects higher pork prices in 2019 on reduced supplies. The stock closed up 4.56 percent at HK$7.8 ($0.99) per share on Friday.

WH Group will keep expanding its slaughtering capacity, the company added.

It will also increase U.S. exports to China if the Sino-U.S. trade issues can be resolved, Wan told reporters.

Reporting by Hallie Gu and Dominique Patton; Additional Reporting by Forina Fu and Shellin Li in HONGKONG; Editing by Tom Hogue and Mark Potter

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