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Many steel companies saw their net profit drop by more than 50% last year
Click:877 Date:2020-5-21 10:28:50
A number of steel companies saw their net profit drop by more than 50% last year. Experts: steel prices fell by about 7% on average, and raw material costs rose by 12%


On the evening of March 30, Shagang and Maanshan Iron and Steel Co., Ltd. issued their 2019 annual reports one after another. Although they were profitable, their net profit fell sharply year on year. The net profit of Shagang Co., Ltd. was RMB 529 million, a year-on-year decrease of 55%; the net profit of Masteel Co., Ltd. was RMB 1.128 billion, a year-on-year decrease of 81%.


Earlier, the annual report of Angang Steel showed that the net profit of last year was 1.787 billion yuan, a year-on-year drop of 78%; the basic earnings per share was 0.19 yuan, a year-on-year drop of 78%. However, its revenue grew slightly last year. However, the revenue of Shagang and Masteel decreased by 8.41% and 4.5% respectively last year.


According to incomplete statistics, up to now, more than 20 listed steel enterprises have announced their 2019 performance, and more than half of them have seen their net profit decrease by more than 50% in 2019. It is worth noting that last year, the profits of ordinary steel enterprises were basically declining, while the profits of special steel enterprises were generally rising, such as CITIC special steel, Jiuli special material and Xining Special Steel.


Why are net profits falling?


According to the analysis, last year's net profit decline of listed steel enterprises should be closely related to the new round of capacity expansion after the end of steel capacity reduction. "The reason why the profits in 2017 and 2018 are good is that we have made great efforts to reduce the production capacity and eliminate the" strip steel ". At the same time, the real estate demand is also particularly good. The joint efforts of the supply and demand sides have increased the profits of the steel mills, especially in 2018, the steel mills make money just like the money printing machine."


However, after the end of capacity removal, a new round of capacity expansion in disguised form will begin quietly. Steel production capacity began to increase, while demand side gradually stabilized with real estate investment, and declined.


It is worth noting that there was another unexpected factor last year - raw material prices. Vale's dam break in Brazil shut down about 90 million production capacity last year, and iron ore prices soared.


"Last year, we calculated that steel prices fell by about 7% on average, while raw material costs rose by 12%, which will further squeeze the profit margin," said Xu Xiangchun, information director of my steel network "Last year, the profit of steel enterprises decreased, which was expected. People think it will be reduced by 30% or 40%, but the final decline is so large, far exceeding the expectation, which may be influenced by the factors of raw material price."


As for the sharp drop in net profit, Wang Yidong, chairman of Angang Steel, explained at the performance briefing on March 30 that the macro-economic growth slowed down and the overall profit of the steel industry declined. The price of raw materials and fuels rose significantly year-on-year. In 2019, the price of ore rose 25.3% year-on-year in 2018, and the profit margin of steel enterprises was forced to narrow. The demand of the company's main clients decreased, the company's main automobile industry decreased by 19.05%, and the market competition became more intense.


Shagang and Maanshan Steel also believe that the decrease in net profit last year was mainly due to the fall in steel prices and the high volatility of some raw fuel prices, which severely squeezed the profit space of steel enterprises.


Shen Wenrong, chairman of the board of directors of Shagang Group, said, "our supply of raw materials, especially mineral powder, is subject to human production, so we need to increase investment in this area. We are ready to find new mines and win the initiative of high-speed development. In addition, investment in technology should also be further expanded, such as our ultra thin belt. In the next five years, we will build a second and third article to continuously expand the competitiveness of the international market. "


Angang Steel expects that the replacement capacity project will be put into operation in 2020, which will bring supply pressure to the market, and the steel price will show a downward trend of shock, resulting in the continuous narrowing of the profits of steel enterprises and the increasingly fierce market competition.


This year's new situation is that due to the impact of the epidemic, the steel industry, which is in a downward trend, is facing a more serious situation.


Sales profit margin dropped to 4%, which is a normal decline


It is understood that, regardless of the impact of ore prices, the decline of steel enterprises' profits in 2019 is actually a reasonable return for China's steel industry. Because high profits in 2018 are unsustainable.


Xu Xiangchun said: "we have also tracked another indicator, measured by the sales profit margin of black calendering manufacturing published by the National Bureau of statistics. The industry has a roughly similar sales profit margin to show the profit, which should be said to be basically balanced. The profit margin of steel sales reached 6.2% in 2018, which is the best in history and basically the same as the average industrial profit margin. "


"However, according to the past law, the profit margin of steel sales is always two or three points lower than the average industrial profit margin, which is the normal profit level," Xu Xiangchun told the economic observation network, "so the situation in the previous year was not very normal.".


In his opinion, the 6.2% sales profit margin dropped by two points to 4% in 2019, which is a normal decline and a relatively reasonable and sustainable profit level for the steel industry. From this point of view, profits should return。

 

 
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