A recent State Council meeting which suggested buying more public services from the private sector will benefit steelmakers in two ways, China Merchants Securities said in a research report. First, such special policies will provide special funding and therefore drive demand growth. Second, the entry of private capital into such public services will benefit leading companies with competitive edges in management and technology.
China's steel purchasing managers index rose to 52.5 in July from 46.8 in May (June data unavailable) as new orders less inventories, a key lead indicator, surged to a 40-month high, JPMorgan said in its Daily China/Hong Kong Views report. The report said the news about China's plan to shut down 400 million tons of untapped capacity (40% of the entire industry) was highly skeptical, though it does highlight the government's resolve to address the long-standing overcapacity problem.
China's midsized and large steel mills reported a combined 2.27 billion yuan profit for 1H 2013, but in June alone they reported a 699 million yuan loss, the first monthly loss so far this year, the China Iron and Steel Association said. If the proceeds from mining and investment returns (ie, non-core business) were taken out, the steel industry would have reported losses for the 7th straight quarter due to severe excess capacity. Notably, profit per ton dived to a mere 0.43 yuan in 1H 2013, the association said.
China's crude steel output rose 7.4% year on year to 389.87 million tons in 1H 2013, the National Development and Reform Commission said.
China's construction steel market has experienced strong destocking, and steel prices have been rising since July, the China Securities Journal reported, citing insiders. Construction steel inventories have fallen for 17 consecutive weeks. The market is expected to extend the recovery in August, bolstered by higher raw materials prices and widespread steel mill shutdowns following government orders.
Chinese coal companies are to post 14-92% year on year declines in earnings for 1H 2013 due to weak coal prices, Morgan Stanley predicted. Coal prices in Qinhuangdao, the most common gauge of coal prices in China, fell 20% year on year in 1H 2013. Morgan Stanley expected a softer earnings drop for thermal coal producers and greater pressure on coking coal producers.
The Shanxi provincial government introduced policies to shore up its coal sector – the province's economic pillar – as coal price has fallen to a five-year low, the Securities Times reported. One big step is that service fees charged by the China Taiyuan Coal Transaction Center will be halved from August 1 to the end of 2013 to cut cost for coal producers. Shanxi's coal industry posted a 11.4 billion profit in 1H 2013, down 53% year on year. Tax revenue from the coal industry dropped 22.6% year on year to 1.74 billion yuan in July in Taiyuan, Shanxi's provincial capital, as only 1/3 of local coal miners managed to maintain regular operations during the month.
Cement prices were largely flat in the week through July 28, 2013, with eastern and southern China seeing growth, SHK said in its China Cement Weekly report. Clinker prices in eastern China rose for a second week, up by 10-20 yuan/ton from the previous week due to better weather and lower inventory levels of leading regional producers. The report predicted a rebound of cement prices in August in eastern China, as cement price movements usually lag a month behind clinker prices.
Metal demand in China rose 1% week on week in the week through August 4, 2013, with the nonferrous metals sector slightly outperforming, up 1.2%, UBS said in its Moring Expresso Asia report. Among the sub-sectors, new metal materials, lead-zinc and aluminum performed well, rising 2.8%, 2.1% and 1.5% respectively. Gold was the only sub-sector that fell, down 1.2%.
China's nonferrous metal industry posted 2.44 trillion yuan in revenues and 77.31 billion yuan in gross profits for 1H 2013, up 14.1% and down 12.5% respectively from a year earlier, the Ministry of Industry and Information Technology said. Weak demand, excess capacity and tougher environmental standards were blamed for the profit decline. China's output of the 10 most used nonferrous metals rose 10% year on year to 19.47 million tons in 1H 2013.
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