Baosteel First-Half Profit Surges 65% as Prices Soar

Baoshan Iron & Steel Co. (Baosteel), the Shanghai-listed arm of China’s biggest state-owned steel producer Baowu Steel Group Corp., reported a 65% surge in net profit in the first half of 2017, despite loses from the newly acquired Wuhan Iron & Steel.

In its first interim report after merging with Wuhan Steel to create Baowu Steel, Baosteel said net profit for the first half reached 6.17 billion yuan ($930.86 million), topping all listed steel producers in China. Revenue more than doubled to 169.9 billion yuan from a year earlier, thanks to the recovery of steel prices as central authorities continue to slash overcapacity.

The Wuhan Steel unit registered a 780 million yuan loss in the first half, Baosteel said. It completed the Wuhan Steel acquisition in March.

"The performance of Wuhan Steel was affected by the acquisition, and it takes time for Wuhan Steel to adapt to the new group," Wu Kunzong, Baosteel's chief financial officer, told investors on a conference call. Wu said the company is still working to extract synergies from the merger.

The newly established Baowu Steel is the second largest steel maker in the world behind Europe’s ArcelorMittal. The company has about 228,000 employees and total registered capital of 730 billion yuan.

The merger of Baosteel and Wuhan Steel is part of Beijing’s push to cut excessive steel capacity and improve efficiency of state-owned enterprises. China’s campaign to cut overcapacity has helped tighten supply and boost steel prices. The government is also fighting pollution by shutting low-quality production.

The steel price index climbed to 113.86 in mid-August, up 14.16 from the end of 2016, according to China Iron and Steel Association (CISA). China’s crude steel output was 420 million tons in the first half, up 4.6% from the 2016 first half, data from National Bureau of Statistics showed last month.

Higher prices and increased output helped boost the whole industry’s earnings. Major iron and steel enterprises reported 8.7 billion yuan of profits in the January to May period, up over 700% year on year, according to CISA.

In the company’s earnings presentation, Baosteel Chairman Dai Zhihao said the company still faces huge challenges despite the price rally for steel products as prices of raw materials are also rising.