Baoshan Iron & Steel (600019)  March 28 report shows that in 2008 the company achieved total revenue of 200.85 billion yuan, an increase of 4.74%; achieved a net profit of 6.459 billion yuan, a decline of 49.21 percent, or net profit of 0.37 yuan per share.  The company plans to distribute 1.8 yuan cash dividend for every 10 shares.  The company believes that the domestic steel oversupply situation will last for a long time.

In addition, the Ministry of Finance announced that on 27th it will adjust the iron and steel industry’s high value-added export tax rebate rate from 5% to 13%. Therefore the iron and steel enterprises is expected to reduce operating costs.

 Steel oversupply will persist for a long time

The report shows that, Baoshan Iron and Steel billet material merchandise sales throughout the year was 22,813,000 tons.  Product gross margins among the Baoshan Iron & Steel Products suffered decline in profitability across the board, including the volume of cold-rolled carbon steel plate, hot-rolled carbon steel plate volumes, heavy plate, stainless steel plate volumes, special steel and other steel products, gross margins fell between 1.02 percentage points and 9.09 percentage points.
 
The Annual Report admits that with the global economy entering the down cycle, the development of China's iron and steel industry has entered an important turning point, the domestic steel oversupply situation will last quite a long time.

In accordance with the National Bureau of Statistics released data yesterday, for the first two months of this year, China's steel industry suffered net loss of 770 million yuan, compared with profits of 25.5 billion yuan from the same period last year.  The outlook is not optimistic.

Pingan Securities researcher Nie Xiuxin believes that the sales recovery of machinery industry since the Chinese New Year to a certain extent represents the new start of the infrastructure sector, the future of its role in stimulating the demand for steel can be noteworthy.  In addition, with the traditional second-quarter strong sales season of steel products coming, steel prices have little room to fall further.  However, overcapacity in the industry against the backdrop seriously limits the potential of significantly rising steel prices.

 Decline dragged down the performance of inventory preparation

The report shows that, Baoshan Iron and Steel at the end of 2008 set aside reserves for bad debts of 372 million, for inventory decline of 3.886 billion yuan, and for depreciation of fixed assets 49,070,200 yuan.

On January 21 this year, Anshan Iron and Steel Company realized net profit in 2008 of about 3.42 billion yuan, year-over-year decline of about 55 percent over the previous year.  The company's annual provision for inventory valuation reduction was about 1.807 billion yuan.  Only in the fourth quarter of last year, Anshan Iron and Steel Company lost 4.83 billion yuan.

In addition, among the released reports of steel companies, Sangang Minguang’ profit in 2008 ideclined 70% -100% over the same period of last year; Liuzhou Iron and Steel income drops about 98%, earnings per share was less than 0.01 yuan.  Prior to this, Anyang Iron and Steel’s performance in 2008 was down more than 50%, and Xining Special Steel was in red in 2008.

Market analysts believe that declining steel prices and over-priced inventory are the main reasons for decline in performance.  In order to be able to traveling light, Iron and steel enterprises in 2009 will take provisions for the decline of inventory valuation, which will impact 2009 performance.  The third quarter asset impairment of all public iron and steel companies in 2008 was only 2.392 billion yuan, the report of the impairment loss will inevitably rise in a straight line.

It is noteworthy that the Ministry of Finance announcement on the 27th involved the export tax rebate rate increase.  A list of specific varieties of steel, from the list of cold-rolled, silicon steel, such as relatively high-end varieties has become the main beneficiaries of tariff adjustments.  Some of the high value-added products from the export have tax rebate rate of 5% to 13%, which is conducive to domestic steel mills to upgrade their competitive quotation.  CITIC Securities’s Zhou thinks, because of serious shrinking external demand, it would be difficult for the tax rebate rate increase to be effective to reverse the trend of decline in steel exports, but in reducing the burden of enterprise management, its role becomes more apparent.  (Reporter Lu Zhoudao)

Source:  http://news.xinhuanet.com/finance/2009-03/28/content_11087916.htm  中国证券报